How Do You Price a Product and Service? Five Approaches

Situation: A company offers a product combined with a service. Small companies can’t afford the combined price, but don’t need the full functionality of the combined product plus service. An option is to create an offering on a per-seat basis. In this option, how do you price seat utilization? How do you price a product and service?

Advice from the CEOs:

  • Pricing needs to follow value. For large companies, functionality and seamless operation are key. Small companies have different challenges – they have less money and don’t need all the features required by large companies. Configure a limited product for this market.
  • Don’t de-feature the product – create a different use / pricing model. Consider a model that prices based on the user company’s revenue, with periodic review of their revenue and fees paid. As they grow and increase utilization, they increase their ability to pay for, and their need for full utilization.
  • Use a cloud model and create a “pay per amount of use” option. Limit this offering to X number of users or X number of projects to create a different product from the full license option. While this will require monitoring, it will differentiate the partial license option from the full license option.
  • Develop an alternative to what is offered by the chief competitor and create an offering that this competitor can’t compete with.
  • Before making a final decision, institute a formal process for collecting ongoing feedback from customers. This will help to clarify alternatives going forward.

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