Josh Melick is one of the most widely respected people within the technology and software industry, and a recent article of his is causing quite the stir.
Josh has identified a clear issue which he thinks is holding back a number of software developers, based around the way in which they are structuring their pricing. In reality the situation and the solution which Josh points out make perfect sense, and seem overly simple. With this being said, simplicity is often at the heart of all good business, and that is why so many are taking note of the article which he uploaded to his personal blog.
Three Dimensional Approach
Simply put Josh believes that it has been a mistake made by many software developers that they have created a three level pricing structure which only features two key dimensions, usually users and usage. What josh believes should be more important than both of these is the addition of a time limit on each plan. This is the three dimensional approach which he has been talking about and here is exactly why it is so important.
Prices have to increase on an annual basis in order to maintain the level of revenue which the company brings in, versus the increasing costs which they face. Having a plan which expires after a 12 month period is the perfect time to increase prices and still keep the customer happy. This is one of the biggest benefits of this kind of plan structure.
Opportunity For Upgrade
The end of a certain time period is also the perfect chance for you to try and upgrade some of your customers. This adds a nice pause in their time with you and gives you the chance to market to them about that upgrade.
Clear View For The Business
Knowing how many people will be expiring at the beginning of each month gives the clarity which your business needs. This enables you the chance to market to the right people and to make financial plans based on actual facts. If you just have a pay monthly, cancel anytime system, it can be so much more difficult to know where the business should focus its efforts and how many customers it will be able to count on.
And finally you are going to be able to offer great transparency to your customers that is going to be invaluable. This means that you can warn them of the following year’s price hike before they have even signed up. Contrary to what many think, this kind of transparency is critical in gaining trust with customers and you will find that the customers are going to be much more loyal when you give them the heads up well in advance.
There is no doubt that Josh has hit the nail on the head with regards to the approach which software companies should be taking towards pricing structures.
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