Software sales: make a sale at a lower price or not sell at all?
Or how to deal will different price level acceptance
Setting the price for a software product is one of the most tedious task for any salesman. And there are several explanations why the prices are so difficult to establish:
- Software can’t really be quantified as a regular product in terms of value and benefits
- In the software industry you are competing with everybody (while making a nice wine will probably make you compete with the fellow farmer next door, your software can be competed by who knows what guy spending his days in a basement and coding)
- Usually the market is very volatile and you can make long terms estimates
Let’s say that after been studying the market up and down, having the costs written down you came up with a price which will probably satisfy something like 90% of your potential clients. Let’s say that price is $100. Great, you market your product, but what about the 10% you are missing with your price? These 10% can mean the difference between making profit or being even.
Let’s imagine what’s happening with the 10% clients you are not reaching. Probably most of them could have a good use of your product, but they don’t have the money to buy it or think that the competition offer is more adequate in terms of costs versus results.
The easiest way to reach your 10% is to make some discounts. Let’s say that you’ll offer a 20% discount. There are good chances that one of the following will happen:
- You will have some of your 10% buying at the discounted price
- Your competition will make a similar step and you will loose the advantage
- Your other clients will be disappointed and lose thrust in your product
- Nobody from your 10% will buy even at discounted prices
- The discounted price could be unimportant for the buying decision
Ok, so there is a good chance that the old trick to offer discounts won’t have a positive effect. What can you do?
Here is how to do it better:
Make a big mailing to your clients (or whatever communication methods you are using) and announce everybody that all they have to do is to contact your sale guy (codename John) in order to get a very special and personal discount, just because you love him (the client). Make your mail as personal as it can be, the entire idea is to make the client believe that this offer is just for him. When the client calls John, give him whatever price the client wants. If the client can only pay 10% of the regular price, give him a 90% discount, but make it feel that he gets this discount because you consider him a beloved friend who happens to buy your product. Here is what will probably happen:
- You get a very satisfied client who will worth his weight in gold sometime later
- Even with a 90% discount you still have 10% revenues from 10% of your potential clients who otherwise wouldn’t buy from you
- John will become a very popular sales guy and everybody will call him for future sales
- You get in a direct contact with some people who wouldn’t normally be contacting you
- You can create a clients database who you can be sure is sensible to discounts
- Your 10% clients will bring other clients who wouldn’t normally be interested by your products
- Some of the 10% clients could actually be very important clients that just haven’t felt ok about the product at your normal price
- The 10% clients will feel like being in heaven getting a very special discount
- Your competition will never know what discounts you are offering
Did I try this? Yes, I did. It works for small and medium software companies.