Ensuring the price is right

“Most software companies are started by technologists or, if they’re not, they’re started by business people who have very little exposure to pricing,” says Geisman, a 25-year IT industry veteran who is the founder and principal of Massachusetts-based consultancy Software Pricing Partners.

“As a result, everybody tends to under-price their product. People screw up pricing because they don’t understand it, they don’t attack it systematically,” he says.

“It’s one of those things that takes up an inordinate amount of time and then ultimately it’s a dart throw. There’s nothing wrong with throwing a dart. There is something wrong with throwing a dart when you’re 100 feet away from the target.”

Geisman was in New Zealand recently where he presented workshops in Auckland and Wellington for local software vendors, with a specific focus on pricing principles as they apply to the software as a service (SaaS) delivery model.

The pros and cons of selling SaaS

The increasing global popularity of SaaS solutions – where software is effectively rented on a monthly basis and delivered over the web rather than bought and installed on a customer’s hardware – opens up new market opportunities for New Zealand developers.

But the SaaS model also brings with it a new set of sales and marketing challenges, says Geisman. Just because it’s possible to sell a SaaS product universally doesn’t mean it’s wise to make it available in every market, he says, especially if you haven’t formulated a global pricing strategy.

Selling into a market you are unfamiliar with may prove to be more trouble than it is worth. Depending on the nature of the application you are selling, it may need to be re-coded to meet local requirements, business practices and regulations.

An accounting solution vendor, for example, would need to customise their software for the value-added tax or GST regime in each country they sold into.

Another consideration for SaaS vendors is that some jurisdictions, such as the EU, have laws restricting personal and business data being stored overseas. This can be an issue for companies who outsource their data processing and storage to a data centre operator based outside Europe.

Selling a software solution that requires significant set-up or ongoing support into a far-off country, or one in a significantly different time zone, will also present problems unless you have a global on-the-ground support network in place, or at least a 24/7 call centre.

The power of researching a new market

These types of issues highlight the importance of thoroughly researching a market before selling into it, says Geisman. That research will provide the foundation for setting an appropriate price structure for a particular market.

“The genesis of a software product is a good idea that’s based on some understanding of the market. The problem is that a lot of people don’t take the time to listen to customers and really understand what they’re saying. They’ll envision a problem and they’ll solve the problem, but they don’t solve the problem in context. And it’s the context that really drives the value of the software.”