Software pricing models

The price s that are discovered from your market research will be the number on which to create viable ROI models. This is NOT the price on the price list. With a sense of the amount that the market would be willing to pay, step forward through the business needs to come up with the manufacturer standard retail price MSRP.

The MSRP is the value that would go on any commercial price list. Design for the long term. Find out what standard compensation models are for channels and partners. Be assured that the model will need volume discounts. That is the biggest discount level to start with. For simplicity and SKU management , limit the discount levels to only 5 or 6 levels.

Look at the market. Determine where the customers are on the volume scale if the meter relates to volumes of usage. For example, in selling to a telecommunications service provider in a specific geography—and the largest service provider had 50M subscribers; with subscriber-based price calculate the largest discount level for 75M 50 x 1.

It really depends on evaluating the target market. If this customer was an anomaly—then look at the overall customer base and determine where most of the customers will fit.

Design a scale to meet the requirements of the specific market. This will require a lot of discussions with the sales teams who work with these customers on a regular basis. Try to keep the levels simple. Find the sweet spot the customer size that the sales teams should focus on and identify the discounting appropriate for that market segment. Before putting numbers into the price plan, consider the software architecture.

For SaaS services, consider the model below. It represents a structure that puts data at the core — this may be the one thing that the company does not market. Apps represent the actual SaaS services that are being marketed—but there are potentially the platform access APIs , and the microservices or data feeds that become additional revenue sources. Price accordingly. If the desire is to leverage the core data and microservices to create more and more services, then structure most of the revenues to the platform.

Do not overlook the overall solution architecture. As a SaaS provider in a B2B scenario, consider the inputs and outputs in your pricing structure. Likewise, by having the breakdown ready, it is easier to consider more creative pricing when it comes to APIs and microservices. Be assured that as the product family grows, sales, solutions engineers and customers will all want to compare new service pricing with the old. Having a structure for pricing will simplify the position and recommendations.

Before you finalize your pricing go back and look at your gross margins. Predict what the impact of growth will be in your operating costs especially with a SaaS model , and ensure that you are within the corporate financial goals. Approach the pricing strategy with a mindset that represents professionalism in creating logical, reusable pricing that will survive the test of time. Be prepared to adopt new pricing, new pricing meters.

The ability to adjust pricing quickly will give the company a strategic advantage over competitors. Design the software accordingly to capture and report against logical meters that suit the current and potential service offerings.

Structure an approach that is simple to explain. Identify logical meters for the pricing strategy that can be measured and audited. Design the platform for reporting and auditing and expect pricing meters to change.

Get it right and the deal desk will be able to work most sales opportunities without having to come back and negotiate pricing for each exception. A pricing model describes the fees, metering, and discounting associated with a product or service. A pricing strategy provides a linkage between the rights of use by customers, with the costs and fees in delivering the product and service to the customer. A solid strategy requires a data-driven analysis of the go-to-market strategy combined with an architectural understanding of the products and services.

Software as a Service SaaS has become the most popular software model used by major vendors such as Microsoft with Office or SalesForce among many others. SaaS subscriptions are typically monthly or annual fees, automatically renewed. Meters are the count of how the right to use the software is described.

Is it time—minutes, days, weeks, months, years? Is it the volume of transactions or clicks? Is it storage volume? API calls? Picking the right meter is a strategic decision that must be reflected in the software architecture. As the name suggests, a fixed duration license is simply a license to a piece of software for a defined period of time. A trial license is like a fixed duration license, but with the main difference that you are allowing access for a user to allow them to test your application with the hope that they will ultimately purchase a license.

Users expect to be able to try out a software application before they buy it. The trial period is normally defined in advance. The trial license also allows you to control what features or aspects of your application can be accessed during the trial period.

Learn more about supporting trial users here. A project-based license is designed to support collaboration between multiple people who work for different companies. In the project-based licensing model, the customer purchases a main license from the licensor and then grants entitlements to access the licensed application on to project team members. These team members can then access the application under the main license, even if they are part of a different company or organisation.

Rather, it is a license provided to a distinct group of people, but as it is very popular we have included in this list. The academic licensing model is typically used by companies providing educational or engineering applications to schools and universities. It provides access to an application for that specific group of users and the license typically has different commercial terms lower cost, free to use, throttled access to some features, etc.

Academic licenses are much like trial users in that they are either provided for free or a reduced rate in order to encourage usage of an application amount students users or, even better, the usage of an application by academic researchers and teaching staff who both use it themselves and use it as a teaching tool for their students.

The basis idea here is that if a student become familiar with a software application while at university, they are more likely to use that same application once they join the professional workforce. This is particularly the case with more complex applications, such as CAD, CAE, simulation or special effects applications.

Learn more about supporting academic users Learn more about supporting academic users. Multiple authorised employees can use the license on several different machines, but Product X will only run on one machine at a time.

This license again combines aspects of other licenses to create flexibility for the software publisher. The agreement includes a minimum and maximum license duration an employee is allowed to take at a time, but total use time for all employees will not exceed days. With the offline use license, a user can check-out a license for a defined period of time and is not required online access.

This license is ideal for use in the mining or construction sectors where a user of an application may be in a remote area where connection to the Internet is not possible. The time for which a license can be checked out is entirely configurable by the vendor — it can be 1 day, days or whatever the vendor prefers. An anchored license is one in which a license is provided to a customer, but it is anchored to a specific device.

The application can only be used on that specific device. Different to an anchored license, with a device license there is no human actor involved. A license is granted for use of the application on a defined number of devices. Learn more about Learn more about device licensing here. A support and maintenance license is typically used as an add-on to the perpetual license. It is normally used to provide software updates and fixes to a licensed software product purchased under a perpetual license.

A specific set of users can access a product based on a defined whitelist. This is ideal for product testing with select users. If you are looking for the best license model to help monetize your software and increase your revenue, there are many options available and a good license management solution should provide you with the model that best suits your application rather than the other way around!

When deciding on a license model, the best way to approach it is by following these three simple steps:. From the list above, select a license model that you think best corresponds to the way you want to license your application.

Keep in mind it is possible to run more than one license model at one time! Of your preferred license model, is there any particular constraint by which you want to limit access to your application? For example, do you limit consumption by time, by feature, by geography or device? By combining your preferred license model and then applying any particular constraints to that model, you will then have configured your ideal license that can be configured in 10Duke and used to control access to your application.

Software Licensing Guide — Why is it so important? What is a Software License Manager? Guide Software Licensing Solutions — Guide Your Email Address. Software Licensing Models - The Ultimate Guide If you write and distribute software, it will typically come with a license model attached to it.

The Most Common Types of Software Licensing Models Perpetual License A perpetual license is one where a software application is sold on a one-time basis and the licensee can then use a copy of the software forever. Floating License A floating license allows you to define a specific number of licenses to an application that are shared among a specific group of people.

Subscription License A subscription license is one in which the end user licenses the application on a re-occurring basis for a defined period. More A dvanced Types of Software Licenses. Metered License This is one of the most versatile and configurable licensing models.

A metered license can be applied to control access to things like:. Number of CPU cycles consumed. With volume pricing, the price for all users comes down the more licenses, for example, that are purchased. Under the tiered pricing model, users receive a discount for exceeding a certain number of licenses.

However, unlike volume pricing, the discounts are not applied across the board, rather across tiers. The Per User Pricing Model, in which companies offer all features and benefits to users with the price changing according to the number of users, has historically been one of the more popular SaaS pricing models. Lately, however, it has been falling out of favor. One downside is that charging per user means customers - who are just as motivated by price as you - will try to minimize the number of licenses they buy to save costs.

If your customer is a large enterprise, there might be some reluctance to buy licenses for software that not everyone will use. Using this particular software pricing strategy, customers are encouraged to sign up as many users as possible, but they only pay for those who actively use the software.

The upside of this SaaS pricing model is obvious - customers are only billed according to what their users actually use, making it easier for companies to take a risk with new software. The point of this pricing strategy is to get your customers hooked on what you offer and leave them wanting more of it - even if they have to pay for it. No matter which of the many software pricing models you opt for, remember that for optimum revenue and return, pricing cannot be a static entity.

For more information about how you can leverage other software licensing models to increase revenue , download our whitepaper.