Flat fee or percentage pricing?

By Technical Support

When deciding whether to price support offerings with a flat fee or via a percentage of the license price, keep the following in mind:

– A flat fee is well-suited to a set product price. On the other hand, if the license price varies a lot a percentage will conform better to the potential variations in price. In particular, using a percentage will allow you to maximize revenue from customers with the largest purchases — and without much pushback from them.

– A flat fee is a natural mechanism for imposing a floor or minimum price.

– With percentage pricing there’s the age-old debate of whether to compute it against the list price or the net (discounted) price. Be sure to clearly define the rules.

– It’s fine to mix and match, for instance to price support with a percentage price but with some fixed-price options (e.g. for additional contacts.)

– As always, keep pricing simple. The more convoluted the pricing the more it will require explanations and justifications for customers, and the more likely “mistakes”, intentional or not, will be made while quoting. Keep it simple and easy to justify.

Tagged under: