Software Pricing Strategies Every Product Manager Must Know

Learn essential tips to optimize your software’s pricing and maximize profit margins.

Many B2B software companies partner with large software suppliers and embed their software with their services. With the change in the economy, many of these partners raised their rates resulting in a 10% higher cost in 2022. The “strong” US dollar has also forced a “price” increase for other major currencies, which causes significant price issues for global companies selling into Europe and Asia.

While software buyers need quality software to operate their business, the bar for value is higher than ever as deals get greater scrutiny.

With over three decades of industry experience working as an analyst and a product manager, I have had the opportunity to work with clients in different countries and industry verticals to help them build the right software pricing package. Learning how to price your product in a volatile and competitive marketplace is crucial whether you are launching an entirely new product line or considering repricing an existing product because it impacts profit margins. When products aren’t priced optimally, profit margins will decrease, organizations will have to lay people off, and business growth will be negatively affected.

Software marketers need to work closely with product and sales teams to ensure robust product market fit and value articulation. A stronger marketing focus on digital transformation means shifting investment into areas that keep brand messaging strong, keep the voice of the customer present in all critical decisions, and rationalize budgets to do away with low-return products and programs.

Through my experience, I’ve identified the top 3 tips that will help teams price software. Understanding these insights will enable product marketing teams, product management teams, finance teams, and CMOs at small to mid-sized B2B firms to maintain a competitive advantage, increase profit, and accelerate business growth during an economic slowdown.

?Tip 1: Listen to Your Customers and Price by Value

Before making a purchase decision, your customers shop to find a solution that provides value.

From a product perspective, organizations need to adjust their pricing relative to the value they provide. Consider benchmarking your software’s value relative to other vendors in the market.

One way to evaluate business value is by looking at the emotional footprint. In other words, do your customers trust your brand? Do customers feel respected when engaging with your technical support team? Do customers rate your product as a reliable solution? Creating surveys and interviewing your customers will reveal critical insights into how your software provides value and whether customers perceive that the cost is fair relative to that to.

Tip 2: Factor in the Market, Not Just the Price of Goods

Many software providers operate in a mature market, and specific markets are saturated. When you’re in a market with more products (supply) than buyers (demand), the supply tends to decrease prices. So, if your product is in a maturing software market, you can expect prices to trickle downward.

On the other hand, if there are only a handful of software providers in your niche compared to the number of buyers, the price will start to creep upward.

The questions you need to ask yourself before pricing your product include “What does the market look like,” and “Can the market bear the price?”.

Also, consider inflation and the currency exchange rate if you operate in international markets. Understand how your economy is growing or contracting relative to other economies. There’s a saying that if the United States sneezes or gets a cold, the rest of the world gets sick. As the world’s largest technology economy, the market conditions in America play an important role in determining global software prices.

Tip 3: Make Data-Driven Decisions Based on Your Competitor’s Pricing Strategy

Have you taken the time to evaluate how each of your competitors are pricing their solutions? The price points your competitors choose today will shape the market in the coming months. It will also influence consumer decisions.

For example, if your product is priced much higher than your competitors while providing similar value, more buyers will likely choose your competition over your brand. However, pricing too low relative to your competitors is only sometimes better. If your software is priced too low or gives away too many freebies, it can influence the perception of your brand and impact the value customers place on your product.

Arm yourself with competitor pricing data to make a better-informed pricing decision and adjust your pricing strategy to remain competitive based on what your competitors are charging. Completing factual-based research will give you confidence when creating pricing packages for new products or reevaluating pricing for existing products.

Deciding the right price for your software will be a combination of understanding your customers, market conditions in the economy, and your competitor’s pricing strategy.

To start building the right pricing strategy for your organization, consider using our latest actionable and interactive tool: Optimize Software Pricing in a Volatile Competitive Market Workbook . This tool can help you save time and simplify the process of collecting customer and competitor information to make better-informed pricing decisions.

If you would like to learn more about how to build the right pricing strategy for your software, or if you want to work together with the workbook tool, contact me directly at [email protected] .??

By Joanne Correia, ?Principal Research Director, ?

SoftwareReviews, a division of Info-Tech Research Group?