Driving through the small Quebec town of Portage-Du-Fort this afternoon, I came across this real-estate jewel. The seller’s marketing approach is oddly contradictory! It’s for sale (implying value), yet it’s dangerous… go away!

This got me thinking about the dozens of chats I’d had with software startups about pricing models – or lack of. Developing a sound business model is tough work. Perhaps the web 2.0 “model” is a convenient excuse for ignoring monetization: “we’re gonna focus on traffic, then worry about making money – you know, like Google does it!” Well, even Google knows that nothing is really free. Somebody’s paying for it somewhere along the chain.
Selling software is very different than selling consumer goods. Many established pricing models don’t apply. For example, cost-plus pricing takes into account the cost of raw materials, manufacturing, packaging, shipping, warranty returns, margins for the distribution channel, and direct & co-marketing. Then profit.
In the software world – development and sales are the main cost-centers. Instead of cost-plus, look at pricing to value. If a customer using your product makes an extra $5,000 in profit (whether by enabling new services or cost reduction) surely your product is worth more than “free”. What’s it worth? $20? $99? $450? If your product is indeed as good as you say it is – then go for $450!
Marketing guru Seth Godin agrees,
Your sales force and your customers may scream that you need to lower your price.
It’s not true.
You need to increase your value. If people don’t want to pay, it’s because you’re not delivering enough value for the money you’re charging.
You’re not selling a commodity unless you want to.

If you’re still not convinced, read Ronald J. Bakker’s book Pricing on Purpose: Creating and Capturing Value.
There is one more important step before the cash starts to roll in. The most difficult part (for the non-salesman) is to stare into your customer’s eyes and demand they pay you the money you deserve, without flinching. That’s why great salespeople are hard to come by!
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Business, Innovation, Long Tail, SaaS, Software, Web 3.0, Web Apps
pricing-on-purpose, pricing-to-value, ronald-bakker, selling-software, seth-godin
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