Top software pricing mistakes

Pricing is tough. It is no fun. It is a pain in the ass. But over time you will learn a lot. I know I have. This is a compilation of many hard won lessons, and some we are still learning ….

You price without any knowledge, experience, education. Not having even read a simple book called “Pricing”

That approach usually works out perfectly 😉 But with pricing, a little knowledge can go a long way. Take the money you’d leave on the table with your ineffective home-rolled pricing scheme, and invest in some self-education. Then keep at it until you become an expert. Hint: you’ll never become an expert.

You send conflicting messages. You say your product is great, but you price it like was a used car with a blown head gasket

Put your money where your mouth is. If your product is good, price it right. If it isn’t, price it right. You have a certain customer type that would be happy to buy in each scenario, but don’t try to sell to both at once.

If you are competing on price, you don’t price low enough

If you are competing on brand, you don’t price high enough

Or both, if you have different versions, your low priced version isn’t low enough and your high priced one isn’t high enough

Be bold in your pricing. If you are a price leader – lead. If you are building your brand – then price accordingly. But don’t check your swing. You need to have clarity, simplicity, and boldness in your pricing model for your message to get through.

You are pricing defensively based on fear e.g. we don’t want to cannibalize sales of this or that, we don’t want to lose customers, we are afraid our sales guys can’t close at those prices. You are afraid your low price is too low or your high price is too high. Your goal is to not lose revenue vs. making revenue

Get fear out of your system. If you lack confidence in your product – make better product. If you don’t think you can price low and maintain margins – run a more efficient company. If you don’t think your sales people can sell product priced at a premium – get better sales people. But don’t try to fix your organization problems with product pricing.

You take the biggest sales of your year and let most of it slip through your fingers when you calculate the volume discounts set at a level that you never thought you’d hit

When you fail to plan for big orders, you could leave a lot of money on the table. One order might make or break your month. By not stress testing your volume discount scheme, you could take a sales person’s dream scenario and turn it into a nightmare of lost opportunity.

You have a monopoly but don’t capitalize on it. Essentially being afraid of your own shadow or losing a deal against yourself

If you climbed the mountain before anybody else did, chances are you invested a lot to do that. You have a finite amount of time to get a high return on your investment before you have to fight for every sale again and your margins go down. Make hay while the sun shines and price according to your market position.

Non transparent pricing #1 – Thinking you can tease in a customer to your purchase process and THEN hit them with hidden add-in like Maintenance

Trickery will suck a few customers into the vortex, from which they can’t/won’t escape, but it will probably encourage more to re-open their competitive bid process, if they are surprised by back end, hidden costs. Make sure to indicate prices start “from” a certain price and list all prices clearly on your main purchase page, price list. A little honesty goes a long way.

Non transparent pricing #2 – Thinking you can make optional add-ons mandatory vs. just putting it in the price of the product and saying Maintenance is FREE. People don’t like shotgun upgrades. They will remember that

Carjacking customers into buy Maintenance is bad customer relations. It says, our product support and release roadmap is so bad, we aren’t going to let you opt out. Just hope you don’t have competitors.

You set volume discount at a license level that is higher than your average license sold

Starting volume discounts low, and ending high is really counterproductive. Invert it to train customers to start walking up the license tiers early e.g. at 2 licenses, but then graduating the curve so you don’t lose out on really large orders.

Trying to disrupt competitor by releasing inferior version of their tool for free, then never updating it

If your tool is successful from a marketing perspective, you will essentially become a lead generation unit for your competitor. If you do acquire a user, when they grow out of the tool’s features they will go to the competitor eventually.  In this day in age when everything is FREE – for free to have any meaning anymore it has to be 100% free, no bullshit, forever, as good (or pretty close) or better as the competitor’s non-free version, and marketed. If you aren’t going to go all in, free is just a meaningless word.

Not supporting your FREE software. “Hey, we are so generous that we are going to give you FREE software. Aren’t we awesome? Oh, but don’t ever bother calling, emailing, or ever communicating to us in any way about our FREE stuff.” Nothing spells community like making a segment of your users feel like lepers

Support your FREE tools, at least with product forum support. And make it a win win for customers who buy bundles or suites of your tools so they can get dedicated support. Fix bugs, release new versions. If you don’t, you are just creating advertising space for your competitor (see previous item).

Aggressively auditing your customers

Although not directly related to pricing, as this has been in the news lately, I thought I would add it. Big vendors offer a lot of advantages, but they offer some disadvantages too – like a propensity for auditing and even suing you. Aggressive audits have become the trendiest way to juice sales funnels. In one case a company expecting to pay a $300,000 renewal got hit with a $15m bill. Sales can be a tough business but if you are routinely taking your customers to court, word is going to get out and customers will be less inclined to do business with you.


Brian Lockwood

Brian Lockwood is the founder and CEO of ApexSQL


July 4, 2018