Software pricing: Act two!

In the last technoid tip, we examined the importance of product support in pricing software. We'll now turn our attention to another important pricing issue, the product release strategy. There are, of course, two primary technical reasons for producing new releases: defect correction and functional enhancements. But let's examine the financial impetus.

Depending on your product support strategy, you may be hard-pressed to find customers willing to pay additional fees for a release that simply contains defect corrections. You might also discover that your support costs can be reduced by regularly making maintenance (defect corrections) available at no charge. Some companies even develop a support strategy that makes access to product support contingent upon demonstrating that the failure still occurs after the latest free maintenance release has been installed.

One point to consider before creating a maintenance release is how much you'll want to 'advertise' that you're putting out a defect-oriented release, even if it is available at no charge. That's why many companies provide free releases that include minor functional enhancements. It can be far more savvy to publicize the enhancements, and mention that some defect corrections are also included. If the minor enhancements have general appeal, you may also reap the benefit of fewer support calls.

So now it looks like you're being encouraged to ship free releases with functional enhancements! How long can you survive if you do that? That depends not only on development costs, but also on how large your market is, how long it will take to fully penetrate the market, and how much of the total market you'll be able to win--versus how much your competitors win. Even if your product is an instant hit, you may not be able to survive without a boost from a revenue-producing follow-on release or add-on feature, especially if you provide free product support. Take a look at your early market penetration rate, and try to determine how and when it will change to determine the best time for a new release; timing is everything!

Before you even ship your first release, always consider whether you're overloading that release with too many functions. Maybe some of the functions will only be used by the most progressive customers. If you don't want to deny the function to the progressive customers, make them a part of a limited beta test for the second release. If some functions will only be used by a specific type of customer or industry, consider making those an optional feature. Then charge customers a reasonable fee for the second release or the optional feature. Just be sure to make installation of the upgrade or feature as painless as possible.

When deciding which features to include in your first release, always put key usability items first--assuming that product reliability is reasonable for your target market. Improved reliability and robustness can come later. (Give Mr. Gates a truth serum, and ask him!)

So how do you determine which new features to include with maintenance and which ones to provide as a separate release or feature? Two groups in your company can provide insight to that question! Astute members of your sales staff or sales channels can tell you what missing features are currently causing bids to be lost--assuming that the product isn't simply overpriced. Similarly, members of the support team should be able to identify functions most frequently requested by existing customers.

If those groups can't provide insight, then a company check-up on being 'in touch' with current and future customers is long overdue!

Go back to the archive of tips!