Peter Longini, Managing Editor for Inside Product Strategy discussed pricing strategies with Mike Naumuk of medSage Technologies in his latest Product Strategy Network newsletter.
Theory: Target the mix of offering to maximize customer value while at the same time meeting your own cost and revenue objectives.
In practice, more factors need consideration:
The basic foundation of SaaS pricing for monthly or annual subscriptions typically uses a tiered subscription based on a metric such as: number of transactions, number of instances, activity thresholds or other value metric. The fee generally includes: use of the application, including periodic upgrades basic customer support and hosting services. The fee generally increases by a small amount each year to cover ongoing maintenance costs.
Pricing models for professional services are:
I'm here to serve,
Chuck
Theory: Target the mix of offering to maximize customer value while at the same time meeting your own cost and revenue objectives.
In practice, more factors need consideration:
- Competitive pricing - not just direct competitors, but also alternative solutions - maybe the competition for a software offering is not software at all, but a service.
- Positioning the technology and business adoption lifecyle - Do you not charge for certain services that ultimately drive customer adoption.
- What is the customer willing to pay? The price that sticks is based on what customers are willing to pay.
- Revenue trails - Are there any opportunity for supplemental revenue from associated products or services?
The basic foundation of SaaS pricing for monthly or annual subscriptions typically uses a tiered subscription based on a metric such as: number of transactions, number of instances, activity thresholds or other value metric. The fee generally includes: use of the application, including periodic upgrades basic customer support and hosting services. The fee generally increases by a small amount each year to cover ongoing maintenance costs.
Pricing models for professional services are:
- Fixed price for well defined bundled services
- Menu based pricing where the buyer selects from a predefined list of services
- Time and materials - where the cost is based on the effort required and associated costs
I'm here to serve,
Chuck
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