One of the best things which any software developing business can do is to follow the brilliant blog of Josh Melick. Josh has a history in math, business and engineering and he is able to use all of those skills together to provide some of the highest quality advice for companies within this sphere.
Josh has recently penned a fantastic blog post in which he discusses the need for what he calls ‘three dimensional pricing’. This may not make sense to you off the bat, but then Josh explains exactly what it is and why it works so well for these companies in particular.
What Exactly Is The Third Dimension?
To preface this we need to take a look at what companies are currently doing when selling software to customers. Most are offering three different tiered packages, such as bronze, silver and gold. The two things which are offered incrementally with each tier, is currently the number of users allowed and the amount of usage, these are the first two dimensions. Josh however is suggesting that a third dimension should be considered here, which is a duration regarding when the contract is up. Currently customers just roll on their software rights until they decide that they no longer need them.
Benefits of The Third Dimension
There are a number of clear benefits which Josh describes when he talks about this third dimension of sales pricing, which we will summarize now:
- Customer Interaction
The first point here is the extra customer interaction which the company will be able to have with its clients once that contract expires. This gives them the chance to remarket to them, check how their experience is and look to upgrade them to a better package. All interactions with a customer offer a chance to improve those relationships and this is why it could be welcomed.
- Increasing the Price
Software companies have to increase pricing each year in order to cover ever-rising costs and to meet inflation. An end of contract renewal is the perfect time to manage these price increases in the right way with the customer. Most customers anticipate price hikes at the end of the year, but if they have a continuous contract with you it can be much harder to implement.
- Better Management
This also offers a better chance to manage the company and its finical expectations. Being able to lock in customers for a guaranteed 12 months will help with your financial projections and your customer knowledge.
- Upgrading The Customer
This also gives you a great chance to upgrade the customer to a higher tier. You can use price hikes to offer discounts, bundle packages together and use a great amount of other options to take them up to the next level, bringing in more revenue.
This is the third dimension which Josh is talking about and exactly what that dimension can bring for you and for your clients.