Over the last number of years Josh Melick has really put himself front and center when it comes to giving advice to businesses within the tech and software industry. A recent article which he published on his blog is the perfect example of this, which is dedicated towards those who are selling SaaS.
Josh talks in his blog post about just how critical it is to have a three dimensional approach when setting up the commonly used price structure, and it is advice which everyone should pay attention to. Josh points out basic mistakes which are made, and how they can easily be remedied for a more profitable business.
The Three Dimensional Approach
Now almost all sellers of software will have a three level system for sales, usually something along the lines of bronze, silver and gold. Whilst Josh does point out that users and usage are the right kind of differentials within these different levels, these two dimensions alone are not the best way to approach the pricing structure. The third and most important dimension which should be added to this is time, and placing a time limit on the plan which is being sold. This is far superior to the two dimension approach and it is also way better than an all-inclusive price, basically because of the benefits it offers.
The costs of running this kind of business are rising all of the time and it is important that the cost of the product moves in line with that to keep the business profitable. This is made so much easier when the contract expires at the end of the year, as it gives the business the chance to offer a renewal at a price which has been lifted slightly.
Transparency for Customers
Now many businesses worry when they start to hear about price rises and what their customers will think. The reality however is that most customers want to know in advance, and they want the rise to be reasonable. In offering them a limited time package, you can give them a very early sign of what the price will rise by and when it will happen. This will keep customers on side and it will also increase trust between them and the business.
Better Ability to Plan
As Josh points out in the article, knowing that a certain number of contracts are going to be expired each month, gives the business the perfect information to plan. This also helps them in dedicating their marketing team to the right customers and it is information on which they can base a financial outlook. This kind of information is so helpful and if you don’t have that third dimension, you will not have this important information at your fingertips.
As you can see, the simplicity of Josh’s recommendation is something that could help to take the business to the next level, anyone in software development should be paying attention.