Every day I deal personally with emails from new users of my software, existing users, and prospective users. One topic that comes up from time to time is people complaining about the cost of the software (new users), the cost of upgrades (existing users), and having to pay for on-going technical support (existing users). Just because I don’t really get many emails like this (perhaps 1 a week, perhaps less) doesn’t mean I haven’t spent some time and effort working out the best way of handling them. Not surprisingly, I’m not the only mISV to have this problem as someone has been posting about it over on The Business of Software forum. Some of the advice contained therein is pretty good. Some of it (in my opinion) isn’t.

I thought I’d take a look at the best (and worst) responses in the thread. Thread responses are posted as is (no typos have been fixed).

You don’t owe an a customer a lower price unless you promised it. I’d tell the customer, as nicely as possible, that the price will remain as is, and that there may be other products that would meet that customer’s needs better

I like the first sentence of this response. As an mISV you do not have to honour earlier prices unless the customer has been promised access to the lower price. I do not like the second sentence. It’s basically encouraging the customer to look elsewhere. Effort should be made to retain the customer as every customer is a potential source of on-going revenue.

I would give your customer a discount coupon (say 50%) to make them happy and get the sale. Selling at a lower price is better than not selling at all and this is just a one-off. Your customer will be happy and maybe even recommend your software to others because of it. Plus it’s another person you can charge for upgrades in the future.

This is a decent approach. It makes an effort to keep the customer happy, it gives you an opportunity to secure a sale and cement a relationship with the user. It also suggests on-going intangible benefits such as word-of-mouth marketing. I’ve used this approach many times in the past and while I don’t have any hard statistics it does secure the sale in the majority of cases.

I wouldn’t offer him a discount at all — but I love standing my ground, and there’s nothing like sales being made at the higher price to prove that it’s the right price.

Admirable and pointless. If you’re an mISV then your likely to want every sale you can get. If you’re selling dozens of licenses a day then a few lost sales are not likely to bother you. The only time I’d completely dismiss a potential sale like this is if the customer has proven to have a high cost of ownership and that it would be more cost-effective for you to fire that customer than retain them. Out of the 10,000 odd companies that use my software I’d guess I’ve “fired” a customer perhaps 10 times. So the customer would have to be exceptionally bad to want to write them off.

Never do anything for free.

Ask the user if they would be willing to send you a postcard from or pictures from their location in return for a discount.

I like this suggestion. It hearkens back to the postcard-ware days of software and forces the customer to do something in return for the discount. Thus it forces them to assign a personal value to receiving the discount. My only suggestion is that while making the customer do something is great I do not think that receiving the postcard is something that benefits the business long term.

I think the best way to handle this is just to politely write back the customer and say something like, “The truth is that the product isn’t sustainable at the cheaper price. The revenue does not yet cover the development cost, so I have to make more money. My strategy is both to slowly drive up the value (and price) of the product by adding more features, and to slowly expand the potential market and audience for the product with those additional features. “

There’s a few posts that suggest something along these lines. This is a terrible approach. You do not need to reason with your customers nor provide them with a story about your business. In most cases they simply won’t care. After all, as a business owner you don’t particularly care about why the customer wants your product cheaper so why on earth would they care why you want more for it?

Ask them for a 300 word testimonial about how they use your product and why they find it useful. Ask for permission to publish it on your website along with their name and a link back to their website. If they comply give them access to the old pricing.

Full disclaimer. That’s my response and (not to blow my own trumpet) it’s the best one in the thread. It demands some effort on behalf of the customer to get the discount, it gives the mISV some material that will help build credibility when it is published on their website, and it helps to secure an on-going relationship with the customer. And does it work? Absolutely, I’ve been very forward with with my users in the last 12 months asking for testimonials. And you know what? Almost all of them have been absolutely happy to provide one and allow me to publish it with their full name. It’s by far the best way of handling customer price objections gracefully.