How do you come up with the best pricing model for an IT service. It’s online, doesn’t have direct competitors, so there is nothing to compare it to.
This is one in Minutecoach’s LinkedIn Q&A Best Answers series, widened out and rewritten for those not on LinkedIn. If you’d like to read the original, you can use the link at the end of the article.
One way of finding a price when you have a new service without any easy comparisons is to abstract until you identify the real value in the service.
Or said another way, don’t price the service, price what it is accomplishing.
Immediately now you have context, which is the value of the accomplishment to a particular market sector. If you nail this value, you can price the service that supplies it advantageously for your customer and yourself. If the value comes out low, you know you’ve work to do, however elegant the service.
A service may allow different levels of accomplishment, and it may be your role to identify sufficient differentiation to appeal squarely to different sectors and widen your prospective client base, to offer various price points.
If so, I’d suggest you do not start at the top and work around feature reduction as a differentiator, but rather approach price points from a refinement vector, assuming you are wanting to upsell services.
For instance, many vendors release lite versions, to try and hook smaller businesses, to introduce them to the family. They reduce feature count of their flagship product, trying to repurpose the asset yet maintain the price differential between levels.
First to go are options for import/export, API access and customisation. This is nuts, because small businesses need these options more than big businesses, can’t afford to custom them up, and can live with reduced functionality elsewhere. Most of the product innovation comes from multiple small businesses and developers stretching the product to make it do what they need, so it doesn’t make sense to deny them the tools to do it.
Better to have your product centre stage of the small business ecosystem because you have designed it to connect to anything, to leverage the small businesses assets they currently hold in other companies’ software into your higher level software or service at a later date.
Focus groups will be to O.K. to check assumptions, but rough out accomplishment levels and value first. Build, don’t reduce, and don’t assume features have value per se, you need context.
The pricing itself won’t be that tough.