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Eric Sink has a good article on product pricing strategies on MSDN. It is a must read for anyone in the software business. If you are developer and don’t understand software pricing you will have no idea how commercially viable that widget you are developing is. Pricing is a complex issues and this article covers that all the main points that drive it.

One of the issues I have with the article is his example of setting a price point for a commercial version of Firebird. His argument of pricing it higher is not in line with his company’s pricing of Vault compared to VSS, Perforce, etc. Actually Perforce adopts his model but it’s pricing is out of reach for many developers.

One of the stupidest things to do is to price higher than lower. If you price lower you will lose money but gain customers and market share. You will find that customers want to spend money with you after they trust you. Take a leaf out of the Component software vendors – Sell cheap then you can charge for Enterprise support, Source Code, Subscriptions, Training, etc. Enterprise customers love to spend money with companies they trust.

The other thing I disagree with is to raise prices till the whining is just right. Whining customers don’t evangelize; they don’t act like sales people for your product. There are better ways to charge people who want to pay more and still include people who want to pay less.

Eric’s article is a good start but the best place for you to get your pricing strategy is talking to your customers.