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The goal of most businesses is to make money.
And lets be clear: unless you are a "public" company,
revenue is not terribly relevant... it is all
about maximizing profits.
Pricing could be classified as an art, or perhaps
as a science. Ultimately, the classification does
not matter - the end goal is to minimize expenses
and maximize the profit. Before you setup a complex
pricing scheme, consider how you can manipulate
price in order to maximize profit. Here is how:
Money On The Table
Existing customers, or customers who are in the
purchasing process, are the easiest customers
to sell to. If you are not offering an upsell
and/or additional items during the purchasing
process, you are leaving potential money on the
table.
If you are not appreciating the lifetime value
of a customer, you are also leaving money on the
table. Learn how to amortize your customer base.
Create upsells if you do not already have them.
Keep a strong communication channel active with
existing customers, so that you are able to amortize
them whenever an opportunity arises.
More
on Upsells
More
on Lifetime Value
Time-Limited Discounts
Limited-time offers create a sense of urgency.
Offering discounts that are time-sensitive will
help push the customer toward the purchase, especially
if they are on the fence about buying. A discount
might be just what is needed to encourage them
to purchase. Contemplate innovative ways to implement
time-limited discount offers, and use them to
close the sale sooner rather than later.
Cents Matter
Much has been said about the psychology of pricing,
but how much does it really matter? Quite a bit!
If your price is $29.00 and you increase it to
$29.95 or $29.99, how many customers are going
to opt not to purchase due to the additional $.95
or $.99? Price is normally read from right to
left, and $29.99 is often viewed as less than
$30.00, just as $29.00 is. It's most likely that
a customer who was going to purchase at $29.00
will still purchase at $29.95 or $29.99. Why squabble
over a few cents? Because cents translate into
dollars very quickly! For example, if you have
10,000 customers, those extra cents in the example
above add up to $9,500.00 or $9,900.00 respectively.
It gets your attention, doesn't it?
$ Off vs % Discounts
When offering a discount, is it better to list
it as $ off ,or a % discount? Which is better?
The "number" that is greater will most often be
perceived as a better consumer value.
Examples:
If an item costs $10.00, which discount is more
enticing: $5.00 or 50% off? Both discounts result
in the same amount of money, but obviously "50%
Off" grabs the attention of the consumer much
better. The perceived value of 50% off is far
greater than the perceived dollar value of $5.00
off.
If an item costs $200.00, which discount seems
better: $20.00 of or 10% off? Contrary to the
example above, the discount of "$20.00 Off" will
be viewed as a more significant discount than
10% off, despite the fact that once again the
two discounts equal the exact same amount of money.
So, always use the larger "number" to determine
which discounting concept to use for your special
offers.
Quantity Discounts
Discounts based on "volume" will encourage users
to buy more. So try to implement a pricing
scheme that encourages users to purchase a larger
quantity. As the volume purchased increases, so
too should the percentage of the discount.
Bundle It
Add more, ask for more. Group related products
into a bundle or suite in order to encourage users
to purchase additional products. The more synergy
between the products, the more successful the
bundle will be. And remember that the additional
"bundled" products don't necessarily need to be
software -- they can be all sorts of things that
might somehow relate to the primary product you
are offering!
Tier Products
Scale your software product so that it can target
specific audiences. For example, consider a "Lite"
version for the general public, a "Pro" version
for small business users, and an "Enterprise"
version for larger companies. The feature sets
should cater to the respective audiences. Businesses
expect to pay more, while consumers tend to be
more price conscious.
Make no mistake: profits make or break most
businesses. Do not leave money on the table when
it comes to pricing your software.
Related Articles:
Pricing
Business Software
Sweetening the
Pot
How to License
Software
How to Manage
Upgrades
Understanding
Purchase Orders
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Developer
101
The Pricing Game