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Don't Just Roll the Dice - a usefully short guide to software pricing
"At Business of Software 2007 Michael Pryor held an impromptu session on how to price your software. So many people turned up, and so many people kept on arriving, that by the time they'd introduced themselves there was no time left to talk about software pricing. I've had similar experiences; in fact, "How do I price my software?" is probably the most common question I'm asked by software entrepreneurs and product managers.
This handbook is an attempt to answer that question." Neil Davidson, Author.
This handbook is an attempt to answer that question." Neil Davidson, Author.
84 pages, Paperback
First published January 1, 2009
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Displaying 1 - 30 of 37 reviews
July 15, 2017
A book on pricing projects and software systems. Of course, because pricing is dependent on the business model, some business models are also introduced.
Book can be useful to persons who are active in the design of software systems.
Book can be useful to persons who are active in the design of software systems.
June 19, 2020
simple and straight to the point.
August 27, 2020
There is no theory about pricing in this book at all. But it is full of very interesting, insipring, and useful recommendations about how to approach the pricing of new products.
September 2, 2014
A great little book about how to price your product, primarily software, but these guidelines can be used for any product.
You can find the free e-book here
The book is divided into 5 chapters:
Chapter 1: Some - but not too much - Economics
Chapter 2: Pricing Psychology: What is your product worth?
Chapter 3: Pricing Pitfalls
Chapter 4: Advanced Pricing
Chapter 5: What your price says about you (and how to change it)
2. Pricing Psychology: What is your product worth?
Perceived value vs objective value
The perceived value might be higher than the objective value
People base their perceived values on reference points.
This doesn't mean you need to copy the reference point. If your product genuinely is better than your competitors’, and you can demonstrate the value of this difference, or create a perception of that value, then you can charge more.
Perceived value can depend on
taste
tribe
knowledge
fives and nines
how to increase it:
increase its objective value
give your product a personality
link your product to yourself
make people love your product
provide a better service
provide reassurance
create a tribe
remind people of how much work you've put into your product.
appeal to people’s sense of fairness
sell more than just the physical product
it all comes down to differentiating your product
3. Pricing Pitfalls
competitors - if you are going to compete on price, then you should minimize the possibility of a counter-reaction from your competitors
if you price your product to high, will other competitors emerge?
Microsoft is famed for this. They wait for competitors (and often partners) to prove markets with low volume, high price products – whether it’s CRM, testing tools or business intelligence – and then jump in with a low-cost, high-volume model.
fairness - don’t charge the same if one option should cost less paper books vs e-books
pirates
Switching Costs
If you’re trying to persuade people to switch to your product from a competitor’s then you’ll need to position the price to overcome the switching costs your customers face.
economic switching cost
psychological switching cost
4. Advanced Pricing:
Versioning - It’s a mechanism of segmenting your users according to their willingness to pay
by feature
by availability
by demographic
by geography
by industry
by platform
Adding more choices at the edges drives people to the middle of the range.
This only works if people can easily compare the products being versioned.
But the effect reverses if people struggle to compare the different versions of the products. In that case, people flee the middle and head for the extremes.
They also have a tendency to defer: to simply not buy, or go for a competitor’s product.
bundling
However, bundling has drawbacks too. When you bundle software together it becomes harder for your customers to understand what they’re paying for. In turn, that might mean they are less likely to use it.
multi-user licenses
1. Larger companies tend to buy more copies of software since they have more users. Offer them a three for the price of two discount then they’ll get a better deal than individual users and small businesses. Larger companies also have more money and tend not to be so price sensitive. This means that the poor are effectively subsidizing the rich.
2. You might lose sales in the long term. The company who paid for two licenses may have paid for three if you’d asked.
3. On the other hand, they might not have done. Everybody likes a discount, even large companies.
4. Larger companies might have more money, but they can also have stricter purchasing policies.
site licenses
the purchasing process
it’s worth pricing your software just under a threshold rather than just over it.
free
You need to figure out a way to either make it stand out, or impossible to compare.
Despite all this, there is no doubt that ‘free’ holds a tremendous power over consumers. And it’s a power that you can harness.
free trails
The mere fact that customers could try out your software, if they wanted to, transmits a strong signal about its quality.
In a famous psychology experiment, people who were able to hold a coffee mug were willing to pay significantly more for it than those who were just allowed to see it
Free trials only work for software that people use again and again, and where the free trial doesn’t fix the problem by itself.
freemium
make sure the free version is good enough to be useful, but not so useful that it cannibalizes paid-for sales.
network effects
Network effects occur where the value to your customer of using your product increases as the total number of users increases.
Get past the tipping point and your user base will accelerate rapidly
bargains
To work best, bargains should be limited to specific products, or specific times
different ways of pricing
subscription - SaaS
Paying lots of small amounts is psychologically easier than paying one large amount.
your end user will find it easier to justify a small, regular payment to his boss then a single large, one-off payment.
Recurring payments promote regular usage
Many businesses end up with a mixed model. For example, Red Gate combines a one-off fee with an annual 10% – 25% support and upgrades fee.
When choosing your pricing model, here are two recommendations. Firstly, be boring. Secondly, license your software as your customers expect it be licensed – fit in with their business model.
5. What your price says about you (and how to change it)
high price signals high quality
low price signals value for money (but customers could see you as a “toy” product)
Copy your competitors and you could be indicating that you’re just a ‘me too’ product.
The exact price almost doesn’t matter – get it broadly right, don’t screw up totally – and you can tweak it later.
If we shift our prices from $100 to $150 then most people won’t notice, and of those who do notice very few will care.
It’s not what your customers say that’s important, it’s how they behave. Whenever you make a price change, pay close attention to what your customers do. If they stop buying, rethink.
The book ends with a great checklist:
Product Pricing Checklist
Wrapping up, here’s a checklist to help you decide your pricing:
What’s your strategy?
Are you going to price low and sell lots, or price high and sell a few? How does this fit into your brand, the product you have and the image you want to project?
What’s your product? Don’t forget that it’s not just the software that you’re selling. It’s the entire package around it.
How will your customers judge the fairness of your pricing? What reference points will they use? How will they determine what seems right? Will they baulk at the price you choose, or will they accept it?
Who are your customers? How does their business work, and how do they expect to be charged? How much money do they have? Do they prefer a one-off fee, or a monthly subscription? Get under their skin.
Who are your competitors? How will they react to your pricing? How much more, or less, valuable is your product than theirs? What is their business model? What are their prices? If you undercut them, will you trigger a price war? If you do, are your pockets deep enough for you to win it? Do you want to co-exist with your competitors, or destroy them?
How are you going to sell your software? Do you need to send out sales people to take customers golfing? Or are you planning low-touch sales over the internet? Will you require a telesales team? How much will each sale cost you? Do you need to sell via a channel or reseller? What cut will they take?
Can you segment your customers, and create versions? Is your software worth different amounts to different people, and can you create pricing that reflects that? Students and business people for example, or normal and power users, or maybe you can split by geography or taste.
How can you bundle your software? Can you create a larger package that contains more than one software product?
Make an informed guess at your price Despite all the psychology and economics, you ultimately just have to pick a price. Some price – any price – is better than no price.
Try it out Practice trumps theory. Try out your pricing and see what happens. If you’ve got your pricing broadly right – and if you’ve got this far you should do – then you can tweak it later.
You can find the free e-book here
The book is divided into 5 chapters:
Chapter 1: Some - but not too much - Economics
Chapter 2: Pricing Psychology: What is your product worth?
Chapter 3: Pricing Pitfalls
Chapter 4: Advanced Pricing
Chapter 5: What your price says about you (and how to change it)
2. Pricing Psychology: What is your product worth?
Perceived value vs objective value
The perceived value might be higher than the objective value
People base their perceived values on reference points.
This doesn't mean you need to copy the reference point. If your product genuinely is better than your competitors’, and you can demonstrate the value of this difference, or create a perception of that value, then you can charge more.
Perceived value can depend on
taste
tribe
knowledge
fives and nines
how to increase it:
increase its objective value
give your product a personality
link your product to yourself
make people love your product
provide a better service
provide reassurance
create a tribe
remind people of how much work you've put into your product.
appeal to people’s sense of fairness
sell more than just the physical product
it all comes down to differentiating your product
3. Pricing Pitfalls
competitors - if you are going to compete on price, then you should minimize the possibility of a counter-reaction from your competitors
if you price your product to high, will other competitors emerge?
Microsoft is famed for this. They wait for competitors (and often partners) to prove markets with low volume, high price products – whether it’s CRM, testing tools or business intelligence – and then jump in with a low-cost, high-volume model.
fairness - don’t charge the same if one option should cost less paper books vs e-books
pirates
Switching Costs
If you’re trying to persuade people to switch to your product from a competitor’s then you’ll need to position the price to overcome the switching costs your customers face.
economic switching cost
psychological switching cost
4. Advanced Pricing:
Versioning - It’s a mechanism of segmenting your users according to their willingness to pay
by feature
by availability
by demographic
by geography
by industry
by platform
Adding more choices at the edges drives people to the middle of the range.
This only works if people can easily compare the products being versioned.
But the effect reverses if people struggle to compare the different versions of the products. In that case, people flee the middle and head for the extremes.
They also have a tendency to defer: to simply not buy, or go for a competitor’s product.
bundling
However, bundling has drawbacks too. When you bundle software together it becomes harder for your customers to understand what they’re paying for. In turn, that might mean they are less likely to use it.
multi-user licenses
1. Larger companies tend to buy more copies of software since they have more users. Offer them a three for the price of two discount then they’ll get a better deal than individual users and small businesses. Larger companies also have more money and tend not to be so price sensitive. This means that the poor are effectively subsidizing the rich.
2. You might lose sales in the long term. The company who paid for two licenses may have paid for three if you’d asked.
3. On the other hand, they might not have done. Everybody likes a discount, even large companies.
4. Larger companies might have more money, but they can also have stricter purchasing policies.
site licenses
the purchasing process
it’s worth pricing your software just under a threshold rather than just over it.
free
You need to figure out a way to either make it stand out, or impossible to compare.
Despite all this, there is no doubt that ‘free’ holds a tremendous power over consumers. And it’s a power that you can harness.
free trails
The mere fact that customers could try out your software, if they wanted to, transmits a strong signal about its quality.
In a famous psychology experiment, people who were able to hold a coffee mug were willing to pay significantly more for it than those who were just allowed to see it
Free trials only work for software that people use again and again, and where the free trial doesn’t fix the problem by itself.
freemium
make sure the free version is good enough to be useful, but not so useful that it cannibalizes paid-for sales.
network effects
Network effects occur where the value to your customer of using your product increases as the total number of users increases.
Get past the tipping point and your user base will accelerate rapidly
bargains
To work best, bargains should be limited to specific products, or specific times
different ways of pricing
subscription - SaaS
Paying lots of small amounts is psychologically easier than paying one large amount.
your end user will find it easier to justify a small, regular payment to his boss then a single large, one-off payment.
Recurring payments promote regular usage
Many businesses end up with a mixed model. For example, Red Gate combines a one-off fee with an annual 10% – 25% support and upgrades fee.
When choosing your pricing model, here are two recommendations. Firstly, be boring. Secondly, license your software as your customers expect it be licensed – fit in with their business model.
5. What your price says about you (and how to change it)
high price signals high quality
low price signals value for money (but customers could see you as a “toy” product)
Copy your competitors and you could be indicating that you’re just a ‘me too’ product.
The exact price almost doesn’t matter – get it broadly right, don’t screw up totally – and you can tweak it later.
If we shift our prices from $100 to $150 then most people won’t notice, and of those who do notice very few will care.
It’s not what your customers say that’s important, it’s how they behave. Whenever you make a price change, pay close attention to what your customers do. If they stop buying, rethink.
The book ends with a great checklist:
Product Pricing Checklist
Wrapping up, here’s a checklist to help you decide your pricing:
What’s your strategy?
Are you going to price low and sell lots, or price high and sell a few? How does this fit into your brand, the product you have and the image you want to project?
What’s your product? Don’t forget that it’s not just the software that you’re selling. It’s the entire package around it.
How will your customers judge the fairness of your pricing? What reference points will they use? How will they determine what seems right? Will they baulk at the price you choose, or will they accept it?
Who are your customers? How does their business work, and how do they expect to be charged? How much money do they have? Do they prefer a one-off fee, or a monthly subscription? Get under their skin.
Who are your competitors? How will they react to your pricing? How much more, or less, valuable is your product than theirs? What is their business model? What are their prices? If you undercut them, will you trigger a price war? If you do, are your pockets deep enough for you to win it? Do you want to co-exist with your competitors, or destroy them?
How are you going to sell your software? Do you need to send out sales people to take customers golfing? Or are you planning low-touch sales over the internet? Will you require a telesales team? How much will each sale cost you? Do you need to sell via a channel or reseller? What cut will they take?
Can you segment your customers, and create versions? Is your software worth different amounts to different people, and can you create pricing that reflects that? Students and business people for example, or normal and power users, or maybe you can split by geography or taste.
How can you bundle your software? Can you create a larger package that contains more than one software product?
Make an informed guess at your price Despite all the psychology and economics, you ultimately just have to pick a price. Some price – any price – is better than no price.
Try it out Practice trumps theory. Try out your pricing and see what happens. If you’ve got your pricing broadly right – and if you’ve got this far you should do – then you can tweak it later.
December 5, 2017
A very good book on pricing - of software, but you can use it for pricing other goods too.
This book gives you a checklist of questions to ask yourself and find the answers to find the right price and the right pricing strategy -- which fits your business but your (potential) customers too.
I recommend this reading to everyone who plans to sell something and is unsure about the pricing. Ask yourself the questions in this book and think about the answers.
This book gives you a checklist of questions to ask yourself and find the answers to find the right price and the right pricing strategy -- which fits your business but your (potential) customers too.
I recommend this reading to everyone who plans to sell something and is unsure about the pricing. Ask yourself the questions in this book and think about the answers.
July 1, 2017
While it contained useful perspectives on software pricing, I felt that the brevity of the book took away more than it added. However, I did enjoy reading the author's insights on the console pricing wars, and feel that the discussion about enterprise vs. open source software applies quite aptly to the current situation that IDA Pro and radare2 find themselves in.
April 3, 2019
I've you've worked for some time in a SaaS business, there's really nothing new here.
No forumla and no concrete pricing advice.
The last sentence of the book is something along the lines of "just pick a price, any price is better than no price" - that seems to be the very definition of "rolling the dice"!
No forumla and no concrete pricing advice.
The last sentence of the book is something along the lines of "just pick a price, any price is better than no price" - that seems to be the very definition of "rolling the dice"!
June 7, 2017
Software pricing made easy with simple exemples and solutions, a must read.
September 17, 2018
Outdated and very little useful content in 2018. The software industry has evolved in 11 years, probably too much for this book to provide any useful insight.
February 1, 2019
Clear & concise - helpful to read through.
November 28, 2021
Perhaps I am reading it too late, but lot of it is terribly dated.
May 12, 2023
Good book but just to be used as an intro.
December 3, 2010
Don’t Just Roll your Dice is a short book on understanding and creating a pricing strategy for products your organization has created. This can by any product software or anything that you plan to sell. This power packed guide has five chapters that details into
1. Basics of pricing
2. Finding out what’s your product worth? in other words what is the right price for your products
3. Pitfalls that one needs to avoid
4. Various ways one can price their products and choosing the right strategy
5. Once you have arrived at a price then, how to make sure you are able to change the same without affecting your sales.
Even though this one is a small book, but eventually covers concepts I wanted to learn. Overall a very good book for some one who needs to learn on how to create a pricing strategy for their products.
1. Basics of pricing
2. Finding out what’s your product worth? in other words what is the right price for your products
3. Pitfalls that one needs to avoid
4. Various ways one can price their products and choosing the right strategy
5. Once you have arrived at a price then, how to make sure you are able to change the same without affecting your sales.
Even though this one is a small book, but eventually covers concepts I wanted to learn. Overall a very good book for some one who needs to learn on how to create a pricing strategy for their products.
October 3, 2011
I started reading first the free eBook ... but on page 3, I realized how brilliant this little book (70 pages) is, so I got the printed version.
Whatever you need to price, not only software, this fantastic book can help you.
Chapter 1: Some - but not too much - Economics
Chapter 2: Pricing Psychology: What is your product worth?
Chapter 3: Pricing Pitfalls
Chapter 4: Advanced Pricing
Chapter 5: What your price says about you (and how to change it)
Whatever you need to price, not only software, this fantastic book can help you.
Chapter 1: Some - but not too much - Economics
Chapter 2: Pricing Psychology: What is your product worth?
Chapter 3: Pricing Pitfalls
Chapter 4: Advanced Pricing
Chapter 5: What your price says about you (and how to change it)
January 19, 2016
Although I have no idea why did I have an pdf of this book in my library, I learned way so much from this small handbook. It sheds the light of science into one of the most uncertain areas of software development. The knowledge doesn't limit itself to software pricing, but also highly applicable in many other fields. I did apply the knowledge into branding and attracting talents. I wrote a trilogy about that in my blog
April 21, 2010
"A book on applied ideas to find out what really works in more effective human relations." Concise, and applicable to other products & services. I can guarantee you that it will shake up your thinking about fees and pricing. It will un-stick some old notions.
July 10, 2011
Very good read...
Provides logical explanations behind various pricing strategies followed by examples and analyzes the pros and cons....an interesting small read to explore the science and art of pricing...
Provides logical explanations behind various pricing strategies followed by examples and analyzes the pros and cons....an interesting small read to explore the science and art of pricing...
August 24, 2016
Only 2 stars because is just a good recompilation of useful information, but I had already deduced most of it. I don't recommend this if you had taken economic courses, but if you are a complete noob this is perfect for you.
November 30, 2009
Genuinely both short and useful. Best quote: "if you adopt the freemium model without a sugar daddy, then beware." Covers pricing theory, economics, psychology and practical experience.
March 7, 2010
Excellent read.
Interesting bit of trivia: In 1975, Intel's 8080 chip cost $360, by 1980, improved versions of the 8080 cost under $5.
Interesting bit of trivia: In 1975, Intel's 8080 chip cost $360, by 1980, improved versions of the 8080 cost under $5.
December 28, 2009
Great insights into how to price products so as to derive the highest profit by hitting the sweet spot where numbers of sales intersect price correctly. Very practical advice.
September 18, 2010
A must read if you are or will be pricing anything. Primarily focused on software, but many of the ideas will translate to other markets.
July 19, 2011
a beginners guidebook for knowing how software pricing is handled.
April 14, 2013
The subtitle is a perfect summary! I use it as a reference
July 14, 2014
Great advice
May 15, 2015
Set the right price for your product.
September 9, 2015
Well structured, concise and straight to the point.
October 17, 2015
Short and To the point, I liked the part about changed the percieved value of your product
February 27, 2016
Not a bad little book, with some useful insights into the subject. I would have liked to have seen more case studies but I've yet to find a better book on this niche topic.
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