Pricing for the first customer

We have a software that we use to service our customers. The software processes certain state regulation documentation for a specific industry. We are starting to market this product to our customers so that they can do the work themselves. No other software exists other than a spreadsheet program that is not that viable.

We are not sure how to handle the pricing especially for a first customer. We have a customer who is interested in partnering with us to be the first customer, serve as a reference, etc. Having this first customer obviously would be quite helpful to us.

Any suggestions or comments would be helpful

Ask your customer.

Most customers will be very frank about such things. If you are known to provide them value on other issues, they likely want your business to survive and don't mind you making something, especially when it saves them something, too.

Conversations with customers are remarkably revealing.

Pricing is always tricky, but comes down to what someone is willing to pay.

Can you explain how much time and effort the application will save them daily, weekly or monthly? Will it allow them to process more data with less employees? Will it provide better customer service to their clients, improve their overall workflow and processes? Start by thinking of staff time saved plus the less tangible value of improved sanity and organization, which is worth a lot!

If you think it would save 15 hours of employee time a month then it would probably be worth at least $300/mo due to the additional benefits.

This is somewhat related, it is a great blog post by Joel Spolsky on some pricing strategy: http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html Yes, they are doing you a favor by buying your product and being a beta tester. But don't think they aren't getting value out of it, there really isn't any reason you should discount it that much. If it's a functioning product, they will still be benefiting from it immediately and you are the only option. So you are in a good position.

Also, don't just sell it as a one time fee. If you can sell it monthly, or by transactions, or at least an annual maintenance fee. You need to design your pricing for predictable recurring revenue.

Good luck.

You always have two competitors in anything you do, regardless of what you are doing:

1) That the customer decides not to do it at all. And they will take that decision well below the perceived value the product adds. Making a decision to spend money and getting it wrong affects perception of the decision maker far more than not spending the money. The cost needs to be multiples below the value before people start taking the risk.

2) The customer does it themselves. The argument here is the majority of products and services sold are, well, crap. The cost of working around things, asking for support, etc, often outweighs the cost of the product.

If your product is perfect, fine, charge closer to the value added, but with no customers, this isn't the case.

But to balance, don't go very cheap or free because you think they are doing you a favour, you need money, right from the first sale.

The first question is, do you have a clear proposition apart from the pricing? If your answer is yes we do, then you should resolve pricing for any customer. Which is a whole different question. After you have done that, you're left with the tactical question, what will we do for the first customer? And you're likely to tweak something fairly minor - a modest discount, waive installation charges, three months free, whatever.

If your answer is no, we are working on the proposition, then you should do a one-off deal to cover the pre-launch period, with each party clear that this is not in any way indicative of future pricing, it's just an arrangement that needs to benefit both parties, and it's confidential between you.

Most companies, large and small, do pricing very badly. In most mass market web apps, this matters very little, because doing systematic price testing is a natural complement to other testing (features, UX etc). But in niche markets, because pricing is the single lever that you use to generate revenue from your efforts, getting it wrong tends to be a high impact issue, so it's worth considering getting experienced help. Pricing is a critical, but not a core, and not a continuously required skill, so it sits in the realm of business activities where outsourcing often makes good sense.