How to Evaluate Software Pricing for Competitive Accuracy

Every startup is eager to price their software creation. Unfortunately, few entrepreneurs or software engineers spend enough time on their software product pricing model. Sure, it is tempting to evaluate your product based on your excitement about releasing it. But that’s not a good software monetization strategy. So, what is?

Well, an important part of the pricing puzzle is competitive analysis. With some 81% of consumers comparing competitors before making a purchase, it only makes sense that you’d do the same.

By evaluating your software pricing structure, you can:

  • Ensure your product is competitive in your market segment
  • Weigh value and viable monetization
  • Create a model for future pricing changes
software pricing

Why You should Evaluate Software Pricing—Instead of Just Rollin’ With It


Pricing a software product is always tricky. However, while it is enticing to simply price your product based on how you ‘feel’, it can bring your entire project down around you.

Instead of doing that, do this:

Objective Value Is Not Perceived Value

Did you know there is a big difference between objective and perceived value? That’s right, your customers might not recognize (or perceive) the value of your software. And if they don’t see it, then they won’t pay the price you’re expecting them to. Your job is to get them to see the objective value clearly. If you can’t, you’ll have a serious issue. Remember, rational value rarely seeps through to the busy and often irrational minds of consumers.

software pricing

Determine the True Value

What you may think is the value of your software, might not be for your customers. Software feasibility is not solely based on how the product functions.

  • Think about benefits.
  • Analyze your product from your customer’s viewpoint.
  • How would you use it?
  • What would be the most important benefits?
  • What are the non-obvious benefits?

Instead of thinking about the product itself, evaluating the product enables you to find a price point based on the value your customers see.

The Market Might Already Have Set Your Price

Another benefit of evaluating your software pricing is understanding how the market values your price. The more unique your software is, the more price control you have. If you do no competitive analysis you won’t be able to define your software’s originality. The market will set your price for you. Which is why you should start your research there.  

No software company wants to admit their software functions similarly to a competitor. But yours might. It is not only difficult but also risky to create software for a completely new software category. So how can you evaluate if your software solutions are worth the time investment? A good starting place is to figure out where and how you can stand out in the market given any limitations you have.

How to Evaluate Your Software Pricing Properly

Now that you know why you should evaluate your software pricing, let’s look at the best ways you can do that. By now you should see that software creation is only half the battle.

Do Your Research


Research, research, research. We cannot stress this enough. But where do you start said research? With your competition. Depending on what you’re selling, you could have a few or just one or two competitors, but rest assured they are out there. Check out your competitor’s pricing pages to see what type of software solutions they are providing and at what price. Remember, if you can find this information so can your consumers. Sometimes a simple Google search is enough to find your competition.

Don’t Fall Victim to Lower Priced Mentality


A big pitfall we see startups in the software engineering sector make is thinking that less is best. It isn’t.

Too many new software startups think that customers are looking at price first. But in reality, they are looking at benefits first. You already know how amazing your software product is, so price it like it is! The lowest price in the industry is no standard to shoot for. Sell the best, and your customers will appreciate it.

Think about your audience and who you want or expect to purchase your software. From there, create a software pricing model that reflects the true value of what you offer. And if you find you’re coming up short, don’t be afraid to go back to the drawing board. People are always willing to pay for quality and value.

software pricing

Don’t Compare Price, Compare Value


Bouncing off the last bit, competitive research should always focus on value, not price. Look at the value you offer within your industry.

Should be offering automation software, you would compare the value you offer within that segment of the market. Think about what type of value a new company could expect from making a switch to your software solutions. From there, you would look at your value. What would a company benefit from merging your new software solution into their infrastructure? How could you provide that benefit easily, quickly, and for a reasonable price point? Depending on the type of software you offer, this process becomes further complicated.

While an automated software solution might be an easier service to offer, other markets are more saturated. Take a CRM for example. You have to look at how companies use their existing CRM and how your product would add value to their organization. And that has to be calculated in revenue. Because of the complex nature of CRM SaaS solutions, and the big players in the market, few startup solutions can disrupt their competitors. Small gains simply aren’t worth the hassle.

So, think about value over price for a more competitive product.

Software Pricing is Always an Estimate


While you can nail down the specifics of competitive markets, expectations of clients, and costs, software pricing is volatile. No matter what, it is an estimate. However, using these building blocks you can develop a more competitive solution from the get-go. A good guess gives your software solution the best possible shot at success down the line.

Check out more resources pages here

competitor research
Competitor Research

Explore the importance of competitor research, how to do it, and the benefits startups and entrepreneurs can expect from it. Click here to read more on competitor research.

PESTLE Analysis
PESTLE Analysis

Performing a PESTLE Analysis is a critical component to successful software projects. Here’s how and why you should implement it. Click here for more on PESTLE analysis.

funding
Funding Your Project

Here are a few professional tips for getting your software idea funded. From VC’s to incubators, there are countless funding options available to you. Click here for more on project funding.

market research
Market Research

Wondering why market research is so important to the health of your product launch? Then consider this information on why it is critical for development. Click here for more on market research.

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Incubators & Accelerators

Incubators and accelerators are a great way to get your project support, funding, and mentorship. It is also a lower cost option to get up and running. Click here to find an incubator or accelerator.

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