Price software based on the value it creates for customers, not just your costs. A practical rule: charge about one-tenth of the incremental revenue customers gain, or one-hundredth of their cost savings. The pricing model you choose must cover your costs while capturing that value.
10x for revenue, 100x for costs. Sometimes people ask me how they should be pricing their services or their products. And they ask, how do you base pricing? Should it be pricing per seat? Who's using it? Should it be pricing on some sort of meter based on how much of a quantity that someone uses of their stuff? And certainly you can look at some of those things as a floor in terms of what drives your costs, right? Because you don't want to price in a way that's going to make you lose money. But the ceiling is going to be driven by the customer value. And the customer value is going to come from how they increase revenues or how they decrease costs. Now, I have found every day of the week that most businesses, especially businesses below the hyper-large level, care most about sales. And they're able to most clearly measure improvements to the top line. And they keep around, even if they don't have the exact numbers, they keep around intuitively that which improves the top line. You can charge about 1/10 of the sales improvement, and you can charge about 1/100 of the cost improvement that you might bring to bear.
