Throughout the world of business we rely more heavily than ever before on software products which enable us to conduct our business with ease. Additionally there are some truly outstanding startups which are creating software that delivers to a range of sectors and industries, offering a paid service to deliver this software.
According to the expert Josh Melick however, these companies, especially those startups, are making a key mistake when they first price up their packages. In an article which Josh wrote on his blog, Josh clearly outlines the difficulty which these companies have when it comes to their pricing structure, and offers a number of solutions which can help. Let us first take a look at the common mistakes that are made.
Failure to Factor Price Rise
The main problems which these companies are having is that they are ignoring the number of factors which go into their operations and the rise in price which each creates. This price rise of course should be passed onto the consumer but owing to the way that they have set up their pricing strategy, this becomes harder and harder over time. Randomly telling their customers that prices will rise, is not good business, regardless of how good the software may be.
For many of these companies they are so excited to get their software out onto the market that they rush into it and offer an all-inclusive model for customers. This will be a one stop shop whereby you purchase the package just once, and then you have lifetime access to the softer and updates. This of course removes the chance of upselling and no matter how prices rise in the future, there will be no way to get extra money from those customers who have already paid.
The Dimensional Issue
Josh refers to the fact that most pricing structures have an issue regarding the dimensions of their structure. Some companies offer just one dimension, which will be a system that is based on usage. For example this will include a bronze, silver and a gold plan. Some other companies will add a second dimension to this, tagging on additional bundles or price structures for number of users, as well as overall usage. The issue which these structures have, is that they fail to offer what Josh suggests is the most important dimension, and that is time.
What The Third Dimension Enables
The reason why this third dimension is so important is that it enables the software company to increase prices as each year passes. This is actually something which most customers expect from a service in the first place, so the business is unlikely to actually lose clients as a result. A simple price hike at the end of the annual contract is how you can easily hitch up the prices to fall in line with costs, and avoid losing money in the future.
This is where SaaS companies have been missing out.