Pricing Advice Service

Position, license and price your products correctly.

Q. Why are we qualified to help you?
A. Because we have 20 years experience in the global software market!

ComponentSource has been working in the software component and developer tool market since 1995. We market and sell software products globally from our offices in United States, Europe and Japan to over 175 countries around the world. The products we sell are for all the main technology platforms: .NET, ActiveX/COM & Java - as well as C++/MFC, DLL, VCL components and tools for Windows, Linux and Unix. Plus we sell tools that work with IIS, SQL Server, SharePoint and other products used by IT professionals worldwide.

This gives us a unique perspective on what products are the most popular and successful with our customers and what licensing and pricing models seem to work best. As a publisher partnering with us you can benefit from this international experience and get our advice on how we believe you should position, license and price your products. Here are some examples of typical discussions that we have with new and existing publishers:

Q. I am new to the developer market and need advice to get me started?
A. Some of the most common problems with pricing come from initially undervaluing your product. Many new publishers contact us explaining that their new product is better than the other existing products on the market. When we ask for details, they can usually list lots of reasons why it is better - with more functionality, better ease of use etc. When we ask for their target market or audience and the pricing model - there is often a mismatch between the price they are setting and the market they say they are going after. If your product is the best in the market and everyone else has a product that costs $499 - why not charge $599 for it - to show the customers that it is a better product? You certainly shouldn't be charging $49 for the product - as the customer will probably wonder why it is so cheap. Likewise - if you charge $249 and you claim the product is better than the other $499 products - customers may not perceive or believe that a product that costs 50% less than the competition is going to be of a higher quality than the other more expensive options. If you study various price points - you will find that they will impact customer expectations and buying decisions. What is your product quality and service expectation for a product that costs: $49, $499, $999, $1,499, $4,999 or $9,999? You would probably expect a lot more from a product that cost $4,999 than you would from a product that cost only $49 - right? So make sure your price matches the target audience you are going after. If you would like advice on your initial pricing email: harryk@componentsource.com.

Q. I have a product that has been in the market for several years and our sales are declining?
A. Quite often even established publishers forget a very important and fundamental thing - namely remembering to revise and update the product! Customers expect you to be moving ahead with your product development, adding support for new operating systems, adding new functionality and fixing bugs. When you update your product to a new major version from say V2.0 to V3.0, this helps to show your customers that you are moving ahead and continuing to invest in and support the product they have purchased. You will also have a newsworthy event that you can publicize to all your existing customers, evaluators, community Web sites, magazines and partners. You can also get repeat sales from your existing customers with upgrade programs to move to the latest version. You can even revise a very old product and get a very positive reaction and stronger sales from the customer base. For example - if you have WinForms or ASP.NET based products - you should be revising them now to support WPF and Silverlight. Another even earlier example - why not revise that old ActiveX/COM product? You sold the previous version to over 3,000 people and you haven't updated it in over 4 years! Are you sitting on a potential 'gold mine'? If you would like advice on stimulating the sales of your existing products email: harryk@componentsource.com.

Q. Most of my sales seem to be for single licenses - how can I get better multiple license sales?
A. The easiest place to start is to offer licensing for multiple developers or users that will appeal to them. ComponentSource introduced the concept of a "Team License" and a "Site License" for components several years ago. The idea was to encourage companies to legally license their development teams and encourage them to adopt the usage of your products across whole projects, development groups or a complete site. At the same time we were seeking to convince larger organizations that it would be better to buy and license your existing pre-built products and not think that they could write something themselves - as it would save on license costs. The "Team and Site License" model solves many of these issues and can be adjusted as your product and company becomes more established in the marketplace. If your product costs $499 for a single developer license - here is a fairly typical model that you can adopt:

Example: Team and Site Licensing - Step 1 - How do I get started?
$499 1 Developer License
$999 4 Developer Team License (4 licenses for the cost of 2)
$2,499-$4,999 Unlimited Developer Site License (An unlimited number of developers on a single physical site for the cost of 5 to 10 single licenses)

OR

Example: Team and Site Licensing - Step 2 - How to evolve my license model once sales have started?
$499 1 Developer License
$1,499 4 Developer Team License (4 licenses for the cost of 3)
$2,499 8 Developer Team License (8 licenses for the cost of 5)
$4,999-$9,999 Unlimited Developer Site License (An unlimited number of developers on a single physical site for the cost of 10 to 20 single licenses)

Q. Subscriptions & Renewals - Are they a suite deal for my business?
A. A lot of customers have commented to us about their subscription renewals - with budgets being tight, people have quite rightly questioned the value they are getting year on year for their money. One comment we often hear is - why do I have to pay for a renewal if the component I am using has not been updated for the last 12 months? I guess a valid point if they are being asked to pay for a subscription renewal for 20+ or even 100+ components - if the 1 component they are specifically using has not changed. Or if they are being asked to pay 40% of the original subscription charge for a renewal, for what turns out only to be a maintenance and support deal - with no upgrades or new features. Remember - for some customers - the suite deal you have created may not be as sweet as it seems.

So if it is not sweet for all your customers - is having a suite with a subscription a good deal for your software business? Let's take a look at 2 example products over a 4 year period.

Example Publisher A - The Product Specialist - With a License + Upgrades Model

Product Publisher A has created Product A and is selling it for $1,200 for V3.0, with an annual support charge of 20% of the value of the original license at $240 per year. When Product A V4.0 is released Publisher A creates an upgrade price option from V3.0 to V4.0 for 50% off at $600 and an upgrade from any other version at 33% off at $800. He also decides to leave the annual support charge the same at $240 per year. Publisher A decides to revise his product every year to make sure his product is up to date with the latest technology platforms, to get new releases out regularly to reduce the support load - with the aim to make his customers happy and hence keep them using his product.

So what does the license revenue look like for a customer who moves forward with each version?

Year 1: $1,200 New Product A V3.0 License Sale + $240 Annual Support
Year 2: $600 Upgrade Product A V4.0 License Sale + $240 Annual Support
Year 3: $600 Upgrade Product A V5.0 License Sale + $240 Annual Support
Year 4: $600 Upgrade Product A V6.0 License Sale + $240 Annual Support

Total: $3,960 = $3,000 + $960 (With Annual Support) or Total: $3,000 (Without Annual Support)

So $3,960 from the customer over the 4 years of using the product. At the low-end of the possible range, if Publisher A decides not to charge for annual support - the 4 year total is $3,000. At the high-end of the possible range, if Publisher A had also raised his price for a new license gradually over the period with a $200 rise for each new release he could have got even more for the upgrades - so perhaps even $4,260 over the 4 year period is possible. In summary - low-end $3,000, typical $3,960 and high-end $4,260 over 4 years.

Example Publisher B - The Product Generalist - With a Subscription + Renewals Model

Publisher B opts for a different approach, using a subscription model and bundling many components or products together into one offering with the same initial subscription license price as Publisher A of $1,200. Publisher B offers many components or products in his suite and he does not have enough resources to guarantee that he can revise each element of that suite once per year. So he has to compromise on his subscription renewal price to try and keep all his subscribers paying annually by offering a renewal at only $400 per year. However - he does offer great value, loads of additional components or products for free - plus bug fixes & updates are included in the subscription price as well.

Year 1: $1,200 New Product B 2009 Subscription Sale
Year 2: $400 Renewal Product B 2010 Subscription Sale
Year 3: $400 Renewal Product B 2011 Subscription Sale
Year 4: $400 Renewal Product B 2012 Subscription Sale
Total: $2,400

So $2,400 from the customer over the 4 years of using the product. Publisher B also tends to find it difficult to raise his price each year, as customers expect the new components or products to be added to the suite for the same sweet deal. So the publisher finds it difficult to unlock the value of all the development effort he is putting in - as well as finding it difficult to explain exactly what is inside his suite of 20+ or 100+ components or products. The more things he puts in the suite the more difficult it is to update everything and keep all his customers happy - so % renewal rates may fall. This means to earn more from this model, Publisher B will probably have to raise the subscription renewal price for the customer - which in turn may make the % renewal rate fall even further.

So what does the customer prefer? The customer probably prefers to get their chosen component or product updated at least once per year to fix bugs, support the latest platforms etc. Which arguably you can achieve as a product publisher using either of the above examples.

But and it is a big BUT - which model is better for your business? Using the examples above Publisher A is going to be between 25% and 65% better off than Publisher B. Even if Publisher A fails to revise the product in 1 of the 4 years - he can still make $3,360 compared to $2,400. I have used typical license models for new licenses sold with annual support, followed by an upgrade program for Publisher A and for subscriptions with annual renewals for Publisher B. So this is real world pricing and the result may surprise you...or least make you STOP AND THINK!

Perhaps you don't have to give support away for free? The industry norm is to charge 15%-20% of the initial license fee per annum for software support - so why aren't you charging for it? More importantly, the idea of throwing everything into a single suite is possibly not such a sweet deal for your business after all! It is difficult to unlock the value of all your software development efforts if you do not create separate products and price them according to that effort and/or the value to the customer. Perhaps it is time for you to re-visit your product road map, business plan and license model for the coming business year?

Q. Should I unbundle my products for more sales success?
A. Everyone wants to grow their sales - so here are some thoughts on how you can help make that happen - without damaging your future sales by bundling incorrectly.

When you start creating your product range you often create complementary products. This may lead you to start to offer product bundles that include 2, 3, 4 or more of your products at an attractive price for the customer. If you have 3 products that cost $750 each - then creating a bundle that costs $1,500 for all 3 products is attractive for both you and the customer. The customer gets 3 great products for the price of 2 and you get the customer to give you $1,500 instead of $750.

So it sounds like everyone is winning - which is great news. But what happens when you add a 4th or 5th product that cost $750 each? You may feel that you are unable to raise the price of the bundle above the current level and so you leave it alone at $1,500. The customer is very happy now - getting 5 products for the price of 2, but your sales growth may flatten out as you have not received any additional money for the extra development effort that you have put in.

As you add more products the effort to create individual installation kits grows and one day you decide to stop making the individual products available at all - as it is too much effort to make 20 installation kits every time you revise your products.

So now every customer has to pay you $1,500 for your bundle or product suite of 20 products - which sounds much better than $750. But you may have inadvertently forgotten that 20 * $750 is worth $15,000! Or you may have allowed your technical difficulty with installation kit creation to dictate your commercial product pricing. Or you may have left your price locked at $1,500 for too long, arguably for no good reason - just “a gut feel” that you cannot put the price up beyond $1,500.

Possibly worse still - you may have alienated a part of the market that cannot afford $1,500 and was happy to spend $750 on a single product that exactly met their need. Or you may have forced your customer to buy lots of additional stuff they did not need right now for only $1,500 and lost the opportunity to sell anything else to them in the future.

Unbundle and unlock the true value of your product range!
The solution may be quite straightforward. Unlock the full value of your products by unbundling the most popular products from your suite and make them available again individually for $750 or even $999. You will then find it is easier for customers to buy what they really need. You can re-visit your entire product range and re-price and re-bundle the various offerings.

If you go back to our example of 20 products worth $750 each, this may allow you to create 4 new bundles at $1,999 each, still good value for the customer if each bundle includes 5 products worth $750 or $999 each. Re-visiting your product range may allow you to sell all 20 individual products again at $750 each and manage the release cycle one product at a time. This may allow you to focus on the features and quality of each release - which will make customers more satisfied with your products.

More importantly selling the individual products will help the customer pick the product that best meets their needs, without getting other products they do not really want right now. At the same time - you get to unlock the full value of your product range that is currently hidden inside your bundle or suite. Your sales may also improve over time - as the total value of your product offering has been unlocked.

Are you asking yourself - "So why does this matter to me? I don't have 4 products, let alone 20! I only have 2 product editions: a WinForms edition and an ASP.NET AJAX edition." Well if you are about to create a WPF edition and Silverlight edition of your product in time for the launch of VS 2010 - you will shortly have 4 editions. So you need to be careful to avoid the temptation to throw all 4 editions into 1 big bundle for a very low price. Otherwise you will have gone to a lot of extra development effort and have 4 platforms to support - but your sales will not increase to reflect the time and effort you have invested.

Bundles and suites are a great idea - but only when they are used to drive up your average order value from a customer - not to drive it down. Remember your customer wants you to stay in business to be there to support him/her in the future - so make sure you strike the right balance of delivering high quality, high value software to your customers - without damaging your sales.

Bundle your offerings carefully and if you think you have got it wrong - don’t be scared to go back and re-visit your product range and unbundle to get the pricing and licensing model right and unlock the full value of your product range.

Do you need help with questions like these?
Should you be using a Subscription model with annual renewals? What are the advantages and disadvantages of this approach? Is a per server deployment model right for your products? What about run-time or OEM licensing? Are you thinking of introducing an innovative new licensing model and wondering if it will work? Should you be selling source code licenses? Or offering a source code escrow service instead? Should you be charging for maintenance or support and updates? If so - what should you be charging? What is my 3 year product price plan and how does this impact my pricing today?

What should I do next?
If you would like some help with setting your prices or defining your license model - please email: harryk@componentsource.com.