Notes From A Software Sales Guy
I know, sales people have a bad rap (of course, not the good folks here in our team at Building Engines) and if I’m honest it’s for good reason. For years (and years) sales people have been indoctrinated to do things that serve their selfish interests and not necessarily do things designed to make your life a little easier as a prospective client.
My favorite example is the strategy to avoid the pricing conversation. If you’ve bought software, you’ve experienced this. You know how it goes – it’s the part of the first conversation where you’re trying to get an idea of cost magnitude and you say, “so tell me how much it’ll cost – ballpark…” and you’re met with a death stare, blank expression, stuttering or some derivation of, “well, if, but…” (Or a combination of all of the above.)
Now it’s not because they don’t want you to have a price, it’s because they want to make sure you’re hooked on their value relative to your requirements so they can justify whatever number they give you. Ultimately that’s actually a good thing for both parties – the price you pay should represent good value for all – but it’s an awful experience when all you’re trying to do is get a sense of cost.
“If you have to ask how much it costs, you can’t afford it.” – J.P. Morgan.
It’s frustrating, right?
Sales people do this for the same reason jewelry stores hide their price tags – because in a jewelry store in order to find out what a piece costs, you have to ask and when you ask, they can use that opportunity to sell. It’s also because, due to human nature, most people don’t want to say that something ‘is outside of their budget.’ So you keep talking.
In both examples, the fear of the sales person is the same: If you see a high number too early, there’s the potential you’ll qualify yourself out. And sales professionals don’t like it when prospects self-qualify out. They like to be the ones making that decision. We’re a controlling bunch by nature.
Fortunately, except in jewelry stores, this technique is long becoming a relic of ‘old school sales,’ driven in part by people doing more research ahead of time and having access to online pricing tools and comparison shopping sites (we even have our own pricing guidance page that allows you to get price ranges, for example.)
But with the increasing amount of pricing information available online, there’s another sales technique that’s increasingly commonplace among SaaS (software-as-a-service) software companies. It’s called the Trojan Horse pricing strategy. (You’re familiar with the story of the Trojan Horse, right?)
Here’s how it works:
- The core product has an easy to understand price-list, with a monetization metric (e.g. number of user seats or square feet) that are easily identifiable and calculable in advance
- Ancillary products, that are frequently optional, have differing monetization metrics (e.g. the core product might price based upon users, but certain options price based upon transaction volume)
- And then there’s time-based growth/user churn monetization metrics that essentially have little bearing on your initial price, but over your customer lifetime add up significantly. Typical examples would be data/file storage fees, additional user training or support fees, etc.
The goal of a Trojan Horse pricing strategy is to get you to purchase the product for a perceived price initially and then, over time, ramp you to a much larger fee over time through a combination of: a) the addition of ancillary modules that you hadn’t contemplated as they weren’t required at the initial purchase, but whose price scales quickly if you add them; and b) known variables that will grow over time and can be monetized at a high margin because the longer you’re a client, the harder it is to leave.
And it’s effective – in fact some of the largest SaaS software companies in the world leverage it effectively (we’re a client of a couple of them and it frustrates me every year at renewal time when I take the P&L hit to my department!).
So what’s the answer?
In order to future-proof against the cost of ancillary modules with software and other tech, the only solution is to ask a lot of questions based upon what you might need in the future and have those baked into your agreement at a specified cost for a period of time. At least then, you can validate the licensing model that will apply for those modules and secure a committed license fee structure.
With regard to the growth pricing items, it’s worth getting a written response to the following standard questions and having those responses and fees codified into your agreement for at least the initial contract term:
- Are there any fees for file/document/data storage? What are they?
- What are the ongoing fees for user training?
- Who can call for technical support? What’s required to add people to that list of authorized callers?
Of course, there’s always another option. Work with a company that doesn’t employ a Trojan Horse pricing model and doesn’t try and dodge the pricing question. A true partner, dedicated to helping you succeed.
For the record, and in our industry, I’m proud to say that’s us.