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Pricing & Licensing

Pricing modelsBecause software can easily be copied and misappropriated, creating the right pricing and licensing models is critical. But coming up with effective pricing and licensing models isn’t easy. On one hand, many software companies lose customers over pricing/licensing policies that appear unfair or too complex. On the other hand, we see most software vendors failing to capture the full value of their solutions – through undercharging, using the wrong units of exchange, or leaving their intellectual property open to theft.

Our focus on Business Agility means helping our clients capture the value of their products – through new customers and incremental revenue streams – not just shipping good software. Understanding software pricing and licensing is a key part of generating business results.

Pricing, Licensing, and Business Models

Getting pricing and licensing models right today is increasingly difficult, as more software companies move to software-as-a-service (SaaS) approaches, rather than shipping applications that run on customers’ computers. This has far-reaching implications for pricing and licensing. (For example, read about chefs and grocers.)

Underlying ever good pricing strategy is a well-understood business model. Well-architected business models focus on the value that customers gain from your solutions, and how customers want to exchange their money for your value. (This business-level focus keeps us from being hypnotized by questions about “how much it costs” until we can answer “how much is it worth” and “what units does the customer use to measure value.”)

As experts in software pricing/licensing and business models, we help you gather important market information and think through alternate pricing strategies. Once you understand the differences and linkages between various pricing and licensing models, we apply processes that establish the optimal pricing and licensing models for each customer segment. Customers embrace these well-designed models because they get the features/benefits they need at acceptable prices. At the same time, your company maximizes revenue and profits, and protects its intellectual property.

business model framework

The diagram above shows one model for iteratively understanding and designing business models. Starting with an analysis of customer value, we evaluate a series of possible value exchange models (license per seat? per terabyte? per share of stock traded? per patent?), licensing terms and financial forecasts. We also consider the evolution of your product: how will we make money on Release 3? Release 5? By considering radically different pricing strategies, we can help align products with customers to capture more economic value.

With this deep understanding of pricing and licensing issues, product managers and their teams can make more effective decisions on their product’s architecture, target segments, service strategies and other elements of the product mix.

Engagement Models and Deliverables

Enthiosys clients each have a unique set of pricing issues and scope of products, so each engagement can take a unique shape. Common steps include:

  • a deep analysis of current product revenue (units and price), forecasts and competitor offerings
  • building several ROI or customer value tools and validating them with customers to understand how they get value from your solutions
  • identifying market segments with different buying patterns or value capture profiles
  • iteratively exploring distinct pricing strategies and their underlying business models
  • recommending a set of pricing units, packaging options, initial price points, and evolutionary paths for the product set
  • recommending appropriate software enforcement mechanisms (solutions or product requirements) and reviewing license agreements for alignment with the new pricing model

Resources and Useful Tools