Posts Tagged With ‘business-lessons&8217

What I’ve learned about software pricing, in the process of buying a new car

Few weeks ago we decided to replace our current car, and we started the hunt. With the amount of models available and a number of options, you can customize on each model it’s never going to be easy to decide on what you want. A car purchase is going to be the second biggest purchase you are going to make after your house, so it’s important you understand as much as you can and make sure what you are buying.

As part of the process, I understood a great deal on car pricing, certain tactics they use to upsell the model, how they make you realise the value of certain things etc.

One of the problems with software and it’s features is, it’s not a tangible asset similar to the car and it’s features. In a car things are tangible, in certain cases you can visualize it (exclusive paintwork) and in certain cases you can feel it (quality of interiors). Whereas in the software it’s black box, it’s difficult to showcase the value proposition. But I think you should treat both more or less the same.

Here are few high-level things I observed and how it can be related to pricing your software, especially if you are in a SaaS business. I’m going to continue the article based on BMW X6

Never bundle everything into one pack

The number one lesson I’ve learned is never bundle everything under one price tag. There is always a base price of the car and the price goes up based on the features you add. 


This may sound obvious, but as software producer you may be making this mistake of having a single price for the product that contains everything. Certainly we at BizTalk360 are doing it. We have one flat pricing for the entire product (with about 60 features). We have multiple pricing tiers like bronze, silver, gold and platinum, but the level goes up based on customer environment complexity like number of servers and number of deployed applications not based on the features but all the customers get all the features.

The reason we priced it this way is to avoid confusing the customers, in one price they get everything. The problem with bundling all the features under same pricing is, certain features doesn’t get the respect they deserve.  Ex: We have something called throttling analyser an advanced feature with great level of technical complexity, if a customer get’s it for free (as part of the overall bundle), they are never going to appreciate it.

Having a single price for all features may be viable at early stages of the product, but once the software get’s matured, you should certainly think about restructuring your pricing based on the features.

If you don’t restructure your pricing based on features, it will be difficult to add new features to the product, you cannot justify the investment ( 2-6 months development/QA time) in building anything new. Adding new features not only involves initial investment, it also means supporting that features for all of your existing customer base.

There is also an another challenge, some of your customer might think they are overpaying. You might have 60+ features in the product, but a segment of your customer might have bought the product for only some 3-5 core features they are going to use. For those customers, it’s always in their mind they are overpaying for your software. Even though from a software creator perspective it’s good value for money, but from the customer point of view they are paying for features they don’t need.

The above point might also make selling your software harder in certain situations and may end up customers either not buying your product (they might think your product is too complex) or choosing some alternate light weight product in the market.

The concepts are nothing new here, the majority of the SaaS based companies get it correct, they call it value-based pricing.

Package options together

When you have lots of features in the product it’s going to confuse customers, no doubt about it. No one has time and energy to go through all little features. Packaging  (of course with a name) helps to group certain features together.

imageExample: In BMW world M-Sport package is a popular one, that automatically adds a bunch of items like Xenon headlights, sports seats, M-Body trim, exhausts, etc. In a similar way, they have entertainment pack, cold weather pack etc which all adds a bunch of items and makes life easy for the customer to add them.

You can apply the same concept to your software, instead of having a long list of 60+ features available in the software and having multiple pricing tiers with bunch of them scattered here and there, create a well-defined easy to understand packages. Example: In our case we could have created Security pack, Monitoring pack, Productivity tools etc, underneath each one of the bundle you can have the bunch of features.

Make certain things exclusive

This is another important lesson I’ve learned, make certain things exclusive and available only to certain levels. Example: BMW comes with few model variants like SE, M-sport, M etc, each level comes with some level of exclusivity. You cannot pay extra and get those features on lower tiers (not all of them), this forces customers to go for the higher tier, if you love certain features. This is a clear upselling technique you can learn from them.

Example: You may think exhausts are basic things in a vehicle, but BMW created a style variant in the exhaust between their models, which forces customer to go for higher tier if they really like certain things.  As you can see from the below pictures, the M-Sport trim comes with nice stylish square exhaust (+ few more similar little touches)

Regular SE model exhausts


M-Sport model exhausts


You can apply the same technique when it comes to your software, make certain things not available for lower tiers. Some parts you can make it as add-on options, but certain things you can definitely make it exclusive.

Example: In our case, we could have made certain things like EDI parties/agreements configuration, certain dashboards, certain productivity tools available only at higher tiers.

Make customers realise value of specific feature

One of the thing that really surprised me is how they make you realise the value of certain features. ex: Reverse assist camera is charged at £312, in the grand scheme of things, a car at £55k base price, this amount sounds negligible, but they don’t pack it as part of the car.  In a similar way, Audi hill hold assist, which helps the car from rolling backwards in the slopes is an option at £60!! Features like these which you can think of them as basics and should be part of the car are listed as optional extras. This just makes the customer realise the value of them, and make them appreciate more by paying extra for them.

You can do similar stuff in your software, as a technical person certain things may be pretty easy to implement or technically not challenging, but if you look at it from an end customer perspective, it might add huge value to them. That particular little thing may be the reason they need your software, so don’t just hide them into one overall package, make sure it’s visible by adding appropriate $ value.

Give the option for customers to go premium

At the top end of the tier is the exclusive club, where you go for some crazy items the regular public will not look for. But there will be customer who expects these kind of things and level of exclusivity. Example: Extravagance interior design package.


In software term this might differ from industry to industry, may be having a mobile/tablet application is exclusive, or storage over 1tb is available only to exclusive customers, data retention over 1 year is available only to exclusive customers etc 

Value added services

Finally don’t forget the bunch of valued added services you can add to your product. In the car case, that includes 3 years protection for your paintwork, 5 years protection for your tyres, 5 years parts and service cover, finance options, insurance options etc.

This is nothing new, but make it  separate from your regular product price. In software case, it might be things like dedicated account manager, software assurance package, initial training and configuration help etc.  Some people might take it, some people might not. But don’t leave the business opportunity.


The biggest lesson from the process is start with the base, allow customers to choose what they want, make them realise the value of things you have build, make them exclusive, don’t leave any money on the table by under valuing certain features, or not covering certain segment of the customer base like exclusivity, valued added services etc.