How to Simplify Your Pricing Structure

Let's give you some circumstances. I am back again reviewing products for eWeek (please, don't all email me about your products, PR folks). For one review, it took four days, ten emails and phone calls to get the actual price of the product. The PR person initially sent me something that looked like Egyptian hieroglyphics that didn't make any sense to either of us (why did she send it, you might reasonably ask). Of course, the vendor didn't have any prices on their Web site, at least not that I could find.

As a journalist, this gets my goat. I often hear, "We don't want our competitors to know about our pricing." Or "We use multiple tiers so our VARs set their own prices." Hogwash. What these vendors are really saying, "We don't have a clue what to charge for our product/service." Shame on them!

For a client, I was recently working with them on their plan for their new software release. One of my issues is its current pricing model, which has five degrees of freedom:

• Number of PCs supported
• Three different "levels" or overall pricing tiers
• Overall capacity
• Two different software versions
• Other surcharges for extra features

That works out to many thousand different prices. You need a spreadsheet to figure out what you are going to pay. Now, granted, there are some complex software products out there and you don't want to leave money on the table and charge fairly for your product. But five different knobs to turn before you can calculate a price? Not good.

I was a judge in a local competition put on by our county economic development office to pick wining business plans that would receive a nice $50k cash prize. In the five semi-finalist plans that I reviewed, three of them were missing pricing information. The plans were well thought out, had plenty of detail about the company's prospective businesses, and even had copious pages of spreadsheets showing how the business was going to make tons of money in year 4. But without the actual price of the product or service, this information is just a lot of hot air. How can you tell if your business is going to be competitive? What is the sensitivity of your price to your market? I asked these questions of my semi-finalists and you could see that they just didn't make the connection. Uh-oh.

So folks, here's my advice. Keep it simple. Better yet, make a free version available for a limited time or a limited number of users or PCs or whatever. And if you can't put your prices online where your customers can see them, then you shouldn't be in business. Tags: Untagged