Getting Your Pricing Right for Web and Software Businessess

Getting Your Pricing Right
Caelen King – WhatClinic.com

Who Am I
CEO and founder of WhatClinic.com – 500K monthly visitors, raised €2M – subscription, transaction and advertising Models
VP Product NewBay Software – White Labeled web application >15M users
Product Manager Baltimore Technologies – software licensing > €150M

“ P ricing has the best Return on Investment of any activity "

Web Business 101
Who will pay?
How much will they pay?
How will they pay?
Can you reconcile cash flow to costs?

5 Web Business Types Merchant Operating a Market Application Provider Utility Publisher or Broadcaster

Revenue Models Software License White / Co Labelling Mark Up Commission Subscription Pay Per Use 3 rd Party Sponsorship / Advertising

3 rd Party Sponsorship Mark Up Pay Per Use Operating a Market Subscription Commission Publisher or Broadcaster Utility Application Provider Merchant Software License White / Co Labelling

Webware top 100

Why Is Price So Significant Increasing your Price can decrease the volume of sales by delaying or eliminating purchases Increasing your Price can increase the volume of sales because you have more money to acquire customers Increasing your Price can increase revenues if volume remains static Increasing your Price can increase the market size and improves your ability to raise funds

And it’s easy to change. Too Easy

Price Does Not Equal Cost
Price is only one element of your customers’ costs
Increasing your price by 50% may only increase costs by 5%
Your prices share of total cost is inversely proportional to your ability to raise prices

But Price has a Multiplying affect on your Profit
Even the best companies in the world only have a Net Profit of 30%
Most have 10%
A 50% increase in price can results in a 500% increase in net Profit

Startups tend to set prices by sticking their finger in the air

Price Discrimination
You must Price Discriminate
Charge different amounts on willingness to pay
If you don’t you are throwing money away
It’s fair

Student Haircuts

OAP Pints

Airline Tickets

Starbuck’s Flavored Syrup

AIDs Medication

If you Don’t Price Discriminate
You will lose market share
You will lose revenue
People who would get value from your product won’t
The world will be a poorer place

Our Experience with annual subs - Confidential
Q2 2008 – marketing entry price of €240 (€200 AD)
Q4 2008 - €360 (€300 AD)
Q1 2009 - €480 (€380 AD)
Q3 2009 - €600 and new price point of €1,500 (€700 AD)
Q1 2010 - €750, €1,800, and new price point of €9,500 (€1,050 AD)
Q3 2010 - €850, €2,200, €9,500 – we’ll see

A Note on Discounting
Everyone wants a good deal
Customers will look for a discount even when they are willing to pay your price
Negotiate on other elements of cost NOT price
The trick is to find something they value that has little cost to you

Summary
Pricing is very important
Always be looking to increase your prices
Divide and conquer
Neither your sales staff nor your customers will ever tell you your pricing is too low
The first instinct of sales is to discount

Questions?
If you thought this was valuable please link to www.whatclinic.com
Email [email_address]
Slides on blog.whatclinic.com
Twitter @whatclinic

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Getting Your Pricing Right for Web and Software Businessess

by Caelen King on Sep 10, 2010

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Getting Your Pricing Right for Web and Software Businessess — Presentation Transcript