We were young, poor engineers with no idea how sales worked. When they asked what the price was, we picked a nice round number that sounded appealing to us.
"$100,000."
Our counterparty may have actually laughed at us. "I can't just write two twenty-somethings a cheque for $100,000."
Oh, shit. They're on to us. They're gonna bargain hard, and we're going to have to lop off tens of thousands of dollars.
"But what I can do is write you a $10,000 cheque for a 1-day training session, a $15,000 cheque for installation support, a $10,000 cheque for 1 year of maintenance and a $65,000 cheque for a perpetual 5,000 seat license. Does that work for you?"
It did. To do this day, I'm pretty sure we sold the government $100,000 of services because two high-up administrators were incapable of working out their interpersonal issues. Instead, they used our software as a go-between. Absurd.
I've always been nervous about disappointing people, and I was extremely worried he'd scuff at my offer and maybe even stop using my program. Instead he was very kind and offered to pay up front. I made the feature and sent it to him.
A couple of days passed, and he messaged me again to tell me that he just wired me another $60 and that he didn't want anything for them. He just figured my price was too low, and that I really deserved more. That was a wonderful experience in how product can be worth so much more to the person receiving it than the one creating it. For me it was just a fun little project for a weekend, but for him it was genuinely useful and something he could not have created himself.
It's also a fun thing to be able to say. I once under priced a product so heavily the buyer took pity on me and offered more.
I once got a "we're going to bump your offer salary to be more in line with the other devs" and that was a pretty similar feeling
Org bloat & empire building is highly incentivized, and insulates you from the bad times. If you can get all your work done with 60% of the staff, then when you are forced to kick out your bottom performers annually.. it's easy to find some. If you are basically operating lean or at the redline, you need to fight the fight hard every time the axeman comes.
We were virtualizing 150 computers into a VM environment and I asked what was going to happen to the hardware replacement budget for the machines that were virtualized. I got a lot of Hem and Hawing and they said something like 'we can throw it at workstations or training or something.'
This doesn't override other more concrete considerations, but when you're trying to price software (zero marginal cost) made by a startup (often no direct competitors/comparabales), it can be a useful factor.
In Enterprise sales, the speed of sales at a given price often varies by pay grade.
If you want individual teams at large companies to be able to purchase the software, it needs to be at a certain price point.
If the software only makes sense at levels higher up, the price point increases accordingly.
Also, the higher you go up in the company, the longer a deal can take. Thus, price should reflect this as well.
For example, if your software is of the nature that it requires approval of CEOs at large companies, your pricing will need to reflect the extra overhead -- e.g. the time and hand holding it takes to close the deal.
That's why lower prices and faster onboarding is so valuable.
Ideally you want your software to be adoptable at grassroots levels within a company.
This reduces sales overhead and makes lower prices feasible. It's a feedback loop in both directions.
Never forgot it.
It always starts out easy "We want this thing X to do Y, we probably won't use it that much"
Which turns into
"X has our entire enterprise down" and you're like WTF, how can that be, and they are like "Well it worked so good we turned it into a main line of business app and didn't tell you" then "oh yea, can we get 24/7 support on it now" which turns into "The support people we talk to need to understand their shit because this is hitting a database and API endpoint pretty damned hard"
Then all of a sudden that $50k goes nowhere unless you're selling that shit again and again to keep up with your internal costs of making sure they are working.
So they raised it to about 100$ a pair and boom! Massive sales, become a huge player in the market.
If your stuff sells cheap, it's thought of as cheap. Branding is a part of the price!
That's the exception rather than the rule though.
One day I got a call from a plant foreman needing a replacement and asking the price so he could get Procurement to order it. His reaction was "that little box is $400??!! Whatever, can you Overnight two of them, we're down right now."
Value and price are two very different things!
I sent them a text with a price for the project and they wrote back "How much for baseball?". It was worth two times as much at that point.
Excerpts:
> “And she realized… she left money on the table.”
> And Sandy gulped and picked the biggest number she thought anybody would ever rationally pay. And said, “$75,000”. And she said all the buyer did was write down $75,000.
> And she realized, shit, she left money on the table. Sandy Kurtzig was awesome. And she said, “Per year.”
> And the buyer wrote down, “Per year.”
> And she went, oh, crap what else? She said, “There’s maintenance.”
> He said, “How much?”
> “25 percent per year.”
> And he said, “That’s too much.”
> She said, “15 percent.”
> And he said, “OK.”
> [Ed: This is called “flinch pricing.”]
----
> They said, how much is it?
> And I was about to go, “$75,000…” And Gina goes, “Shut up I’m the salesperson.” She said, “A million dollars.”
> ... And the guy looks at Gina and said, “Gina you’re out of your mind. We don’t pay more than $675,000.”
> And Gina said, “All right. We’ll let you have it for $675,000.” ... “But that’s for the base module. What other ones would you like?”
[1]: https://www.businessinsider.com/venture-capital-big-tech-ant...
The most difficult thing is finding the balance and compromise in pricing because some customers will happily pay double the cost, but many won't.
My product is very expensive to make and my margins are not great, but this price gets me the most market saturation in a very important growth stage (business is only 2 years old) while still keeping the business profitable
The Accenture EMEA head asked the room what can we offer to solve X.
before I could answer, of my engineers stepped up and said Product X
MD. How much does it cost? Engineer: $50000 per year
MD turns to me and says. What do you have that costs $1M or more.
Accenture made $2 for every $1 of our SW. They had no interest in selling solutions that didn’t move their and our goals.
