Good morning,

I started having a discussion with someone about pricing models within
another topic, and thought it was interesting enough that I decided to
start a separate thread.

As the owner of a small company that sells software applications to a
particular industry vertical, one of the things I'm constantly
debating with myself about is what revenue model is the best for my
business and for my users. Right now, I use a pricing scheme
developed by the original owner of the company. That involves a one-
time purchase price, with all support and updates to the purchased
version included. When a new version is released, it's available to
current customers at a discounted rate, which once again includes
support and updates. Under that model, there is a drive to find new
customers (which will never go away regardless of what pricing model
is used) and regularly release major updates to the software (which
won't go away either). We typically only obsolete the very oldest
versions of the software, so customers can stay on old releases for
years and continue to get support. It's not the best model for
ongoing revenue, but it's certainly a traditional one, and it can
work.

I'm wondering what other ISVs are doing.

I could change the pricing model to have support as a separate cost
item. I could, for example, have "regular" support, which would
include our Knowledgebase and user forum, but have individual
assistance be a separate item.

I could price the software as a "subscription", where for an annual
fee, they get all updates and support.

I could create a web-based version of the software. The web normally
has pricing on a monthly basis, which would provide a more continuous
revenue stream.

What else?

I'm not necessarily planning on making any changes right now, but I am
interested in what people are doing these days in their efforts to
stay in the business as a software provider.

Any thoughts?

Ron

Hi Frog,

That's a pretty typical model, I think, especially for larger software
packages. I worked as a CTO for quite awhile, and purchase + support
is pretty much the norm with the folks I dealt with. There's an
understanding in some circles, I think, that buying software is
somewhat of a partnership between the developer and the purchaser.
The software is meant to support their business, and having an ongoing
income stream is vital to be able to provide excellent support as well
as upgrades. That model works pretty well for higher priced software,
but as you get down the scale, things tend to change. At the very low
end, you have little utility packages, say, calendars and such, that
are painlessly priced, you get the software, and that's about it. I'm
in kind of a "dead zone". My software isn't very expensive and we
don't charge for support, even tho our software helps to support the
businesses that buy it. The cost for support and updating the
software is fairly high, but because we don't charge for support, we
have to rely on new purchases to finance all of our work. That model
doesn't really work, which is why I'm looking at other alternatives.

Thanks for your input.

Ron

If your cost base is high relative to your income stream then what
about shifting the support 'entirely' to a forum based appraoch. Keep
a 'moderator' involved - someone who knows the software and can
troubleshoot, but otherwise let the 'community' dig on through the
problems and sort them out. This potentially can free up considerable
resource. You could also provide a knowledgebase / wiki with the
solutions to known issues and problems.

All customers can log 'bugs' or known problems into a tracker of some
sort, and paying support customers get their issues dealt with before
non paying - except in the case of show-stoppers where everyone needs
the fix regardless. This way you can generate revenue from the areas
that actually can provide you with revenue and reduce the time and
effort on areas that dont.

You might want to take a look at what is called a Henderson 9 Square.
This is a method of classifying your customers and migrating them from
low revenue high demand to high revenue low demand. There is a really
good explanantion and example of this in a book call 'The Customer
Centred Enterprise', sorry but I cant remember the author just now. It
might help you develop a clean solution to managing and prioritizing
the customers and the revenue they generate. It would seem suited to
this situation.

Cheers

The Frog