Pricing Strategies: How-To & Common Mistakes
Within Lumine Group, we value learning from each other and sharing best practices across the Portfolio. This article is the final in our 4-part Lumine Group Insight Series containing tips and best practices from our business leaders.
In this installment, we ask the team, ”How do you develop a pricing strategy, and what are the most common mistakes you’ve seen?”
David Nyland - President, Lumine Group
Understand your customers.
Pricing is a challenge for all business that we acquire. Their legacy pricing is typically based on metrics that are not linked to customer value and ROI such as the number of users or number of servers. It benefits software businesses to understand how their customers make revenue and profits and we encourage our businesses to link their pricing directly to this.
We encourage business leaders to research their peers. Rarely do software businesses understand the relative pricing of their competitors — and these fears and doubts affect their pricing and discounting decision-making.
There is also typically an imbalanced value exchange between buyer and supplier, with the supplier being in a weak negotiation position relative to the buyer. Offering a differentiated product and exceptional service, along with a strong sales team, can tip this imbalance back in a business’ favor.
Tony Garcia - Group Leader, Lumine Group
We believe in a pay as you grow approach.
Pricing is one of the most important factors for any product – not only business profitability but understanding what is appropriate for customers to pay. It requires a deep understanding of your customer and where this product fits in their business model. With this in mind, we take a “pay as you grow” approach.
We want to ensure a low threshold for our customers to start using our software so pricing should be based on a tangible number of assets such as sites, subscribers, or locations. Pricing should also take into account if they are using only the base software, or also additional modules or add-on functionalities. As the customer’s business grows and evolves, additional functionalities can be added, generating new back to base revenue and ensuring customer needs are met.