The psychology of percentage vs. fixed pricing

Quick, which is cheaper? Premium Support priced at 100k PLUS the 18% (of license) Standard Support or Premium Support priced at 21%  of license?

If you’re like most people, that 100k sounds big, doesn’t it, bigger than the measly 3%. But in fact, if the license exceeds 3.33 m (certainly a large amount!) you’re better off paying the 100K than the 3%.

What does it mean for pricing? You should be aware that a large fixed fee may frighten customers away, so consider using a pure percentage, or split the difference as in  “50k plus 20% of license”. At the same time, a high fixed fee is useful to set a minimum entry price so you could add a caveat, as in “21% of license with a 100k minimum” or “21% of license with a 150k minimum”.

Always run the computations using with several likely license price levels until you are satisfied that you can both get your minimum prices and an attractive scheme for the customer.