The document discusses software pricing strategies. It recommends that companies focus on maximizing revenue rather than minimizing costs. Pricing should be based on computing the value the software provides to customers. Common pricing models include charging per user or transaction, or offering tiers of service like bronze, silver, and gold packages. Segmenting customers and offering clearly differentiated options allows customers to self-select the right package for their needs.

1. Software Pricing
Demystified
Rich Mironov
BoS Conference Europe, Cambridge, April 2019

2. 1. How software companies make money
2. Pricing starts by computing customer value
3. Units matter as much as price points
4. Bronze/Silver/Gold packages instead of
many separately priced features
Agenda
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3. Development Costs, Customer Revenue
Goal is not to minimize costs
but to maximize revenue
• Your development team of 6-8 costs…
• Implied revenue commitment…
• Incremental cost per user/unit…
£1M/year
£6M/year
< 3%
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4. In the software
business, all of the
profits are in the
nth copy, subscriber,
unit or transaction
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5. • Custom Development rewarded for more hours, more
customization. Priced for effort.
• Product rewarded for large number of frictionless, self-
onboarding subscribers/units. Priced for value.
Choose Your Business Model
GrossProfit
Software (users, transactions, features)
Custom Development (hours)
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6. Business customers buy most products to make money
or save money
• How do they describe value?
• Assume we can capture a
fraction of value (15% to 25%)
Consumers typically less analytical,
more emotion/fashion-driven
Pricing Starts By Computing Customer Value
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7. • Our super-special credit scoring application will reduce the
number of credit checks your bank runs
• Your bank currently does {insert number} credit checks per year
at {insert price}. We’ll reduce that by {insert percentage} for a
savings of {computed}.
• We will only charge you {insert price} for
savings of {computed} and ROI of {percent}.
A Generic B2B Value Story
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8. Your support calls/year 20,000
Total annual support hours 5,000
Current support team FTE 4
Average salary £40,000
Annual staff cost £160,000
My savings claim 30%
Your expected savings £48,000
Your support calls/year 20,000
Total annual support hours 5,000
Current support team FTE 4
Average salary £40,000
Annual staff cost £160,000
“By using our tech support knowledge base,
we can reduce your support time per call by 30%.”
Hard Cost Savings Example
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9. • Hotel
• University
• Automobile manufacturing line
• Solar energy farm
• High-end retail shop space
Customer’s Natural Units?
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10. “All You Can Eat” subscription: per user per month
• Must drive subscribers up, support costs down
• Capacity limits for abusers
• Inactive users churn
Transaction-based: free
until you use it
• Continuous marketing
• Carrying costs
• High volume users want
“All You Can Eat”
Two Default SaaS Models

11. Software Tiers/Bundles
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12. • Clearly different goals, needs or users
• Prospects sort themselves into right
package or tier
• Prices must be visible, simple
• War story: mobile apps for churches
Good Segmentation
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13. • Customers define the value of software
• Natural or native units (KISS)
• Ideally, 3 packages for very distinct segments
• Good pricing isn’t interesting
• Avoid “specials” and “one-offs” like the plague
Take-Aways
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14. Rich Mironov
Mironov Consulting
San Francisco, CA, USA
www.mironov.com
+1-650-315-7394
rich@mironov.com
@richmironov