From exorbitant one-time licenses to hidden maintenance fees, it seems like navigating the range of approaches to pricing software can often be somewhat of a minefield. Here, we explore some of the main approaches and learn more about the bad practices to look out for.
The pricing of supply chain software is something that varies frequently. In supply chain, software purchases aren’t made often, maybe at a rate of twice per decade. Therefore, quite often the person buying the software could be doing it for the first time in their career, which creates an asymmetry - the vendor has a lot of experience in selling their product, but for the company purchasing it’s a more atypical event. On top of that, supply chain and supply chain software is an incredibly diverse environment.
One option is single license software, which peaked during the 80’s and early 90’s. It’s a simple approach that is often easy from an accounting point of view. However, despite its simplicity it usually comes with problems: while your company may then own the software and it can potentially become an asset, it’s also risky as, finally, it might not turn out to be usable as intended, transferrable or resellable.
Another common practice is trying out software for free before purchasing. The problem there is that supply chain is such a complex, distributed system that’s it not actually realistic to be able to test a software effectively within a short time-span. To even test one WMS for one sole warehouse would require months of efforts and the potentially costly re-training of many employees.
Between these two options there’s the “pay as you go” process, which may seem like a nice compromise but comes with its own complexities and issues. We go into more detail about this, as well as the ever-occurring problem that technology evolves far faster than prices do. Therefore, companies are often faced with the situation where they’re no longer paying a fair price compared to the technology that’s available on the market.
To conclude, we discuss the idea of “success fees” and why an idea that appears like such a good idea in theory actually presents a large amount of stress and can even create distrust and asymmetries between the vendor and the company. We also talk more about the problems of the “pay per user” approach and how Lokad decided to construct its own pricing practice.
00:08 Why does the approach to pricing vary so much in the supply chain industry?
02:01 One of the most common pricing practices is the “single license”. How well does this work?
05:31 Another fairly common practice is the free trial. Does this really work in practice?
09:30 Nowadays, it is easy to share software reviews online. Does this mean that vendors can’t get away with underhand tactics?
11:53 What about the “pay-as-you-go” practice?
15:58 What about success fees?
21:05 How about charging per user?
25:45 To conclude, we haven’t discussed the strategy we employ here at Lokad. Why did you settle on the idea of a fixed monthly fee without any contractual obligation?