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The ultimate software pricing strategy: making your pricing modular!

Monday, June 26
by Michael Humblet

The ultimate software pricing strategy: making your pricing modular!

Acquiring a customer is expensive and takes a lot of time. In this blog post, I want to talk about how your software pricing can capture the full potential revenue of your customer. This is NOT by scaling pricing on only 1 level (either by users, admins, servers, volume,…) NO, it is by creating modular pricing where there is an upside or and an extra module to upsell.

Acquiring a customer is expensive and takes a lot of time. In this blog post, I want to talk about how your software pricing can capture the full potential revenue of your customer. This is NOT by scaling pricing on only 1 level (either by users, admins, servers, volume,…) NO, it is by creating modular pricing where there is an upside or and an extra module to upsell.

What do most companies do (and maybe you as well)?

They build their software product, they put all the features in one bucket and then they think they have scale in their sales model. That is NOT the way to do it. The right way is to make your pricing modular. This will accelerate your customer acquisition.

How do you build a good B2B pricing for your software product? 

Most companies have all their features (now and future) combined in one offering (features axis). They add scale by adding more users, admins and servers. The problem with that strategy is that scale is limited and customers have no choice.  On top of that, you demonstrate that you have no long-term product vision and the chance to upsell is limited.  What you SHOULD do is creating scale by adding another axis, your pricing axis. You then create scale by adding extra features, extra modules etc.. 

Pricing strategies

The advantages of this modular pricing strategy are clear:

  1. Customers love to choose, so give them choice by providing options. Companies hate a lock in (this is when they feel a vendor is trying to put them in a cage with their licensing mechanism).
  2. You scale faster: you add a low-cost acquisition package and you avoid resistance and friction.
  3. It’s a lot easier to get a foot in the door with a new client and then upsell.
  4. It shows that you have a long-term product vision.
  5. Sales cycles tend to be very long (depending on the business you are in you are looking at 9 to 12 months), so you don’t know which features you have to produce. If you put all your features in one bucket, it’s very difficult to work on them all together. So when you cut them in pieces,  your customer will  say:” Interesting, I want that feature, but I don’t want that feature.” So that means you have time to develop the features that your customers are willing to pay for. And that is key! You want them to pay for your work. 

Conclusion

If you follow these guidelines, I am convinced that you will:

  1. Have a much better balanced and fair price, which is good for the long term of your business and is very transparent towards any customer. This type of pricing build up will prevent churn and will create a great upsell path towards the future. Don't forget that upselling and adding modules to any existing customer reduces the CAC (cost of acquisition) and goes much faster as trust has been established from the beginning of the process.
  2. Faster onramp to sales. Due to this modular setup, you should be able to accelerate your acquisition of new customers as you are transparent and have no lock-in mechanisms in place. Giving freedom of choice is a very strong tool for speeding up decision making!
  3. Sell more. In the end all is about selling and selling faster. This type of modular build up scales on 2 axes, so you will at the end have much higher ticket sales per customer than before.

 
May the Sales be with you!
 
More resources if You're Ready to Go Deeper:
https://www.michaelhumblet.com/blog/ 

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Text edited by Karolien Selhorst. Find her website at www.karolienselhorst.be or check out her profile at LinkedIn: https://www.linkedin.com/in/karolienselhorst/