Don’t Just Roll The Dice — A Short Guide to Software Pricing

  1. Product Pricing
  2. Some Economics
  3. Pricing Psychology
  4. Pricing Pitfalls
  5. Advanced Pricing
  6. What a Price Says
  7. Pricing Checklist
  8. Bibliography & Credits

At Business of Software 2007 Michael Pryor held an impromptu session on how to price your software. So many people turned up, and so many people kept on arriving, that by the time they’d introduced themselves there was no time left to talk about software pricing. I’ve had similar experiences; in fact, “How do I price my software?” is probably the most common question I’m asked by software entrepreneurs and product managers.

This handbook — Don’t Just Roll The Dice: A Usefully Short Guide To Software Pricing — is an attempt to answer that question. You can read online right here or download the professionally formatted PDF version.

1. Product Pricing

In 1938, two young engineers were ready to launch their first product. They’d struggled with what to build. After considering amplifiers, radio equipment, air controllers, harmonicas and even muscle-building electrodes for housewives, they’d finally decided to create an oscilloscope. Not wanting customers to be put off by a version one product, they sensibly called it the Model 200A.

The next step? Decide the pricing.

They eventually settled on $54.40. Was that because it represented the cost of manufacturing, plus a decent markup? No. These engineers hadn’t taken that into account. In fact, they soon realized that the cost of building each oscilloscope was more than the price they were asking. Was it based on what the competition charged? No. They hadn’t bothered to discover that General Radio charged $400 for an equivalent model.

They chose $54.40 because it reminded them of the 1844 slogan used in the campaign to establish the northern border of the United States in the Pacific Northwest (“54” 40’ or Fight!”).

What a dumb-ass way to price a product.

But these two young engineers recovered from their stumble. The Model 200A went on to become the longest-selling basic electronic design of all time, still selling 33 years later. The company they founded became an institution. Their names? Dave Hewlett and Bill Packard.

If Hewlett and Packard, two Stanford graduates with the rosiest of futures ahead of them, can flounder so badly when faced with the problem of how to price their products, what hope do the rest of us have?

Quite a lot, as it turns out.

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