Rethinking B2B Software Pricing
Letting go of per-user and welcoming flat pricing in 2022!
Most enterprise software is sold with just one metric, the number of users that use the software. The reason for pricing software this way is that companies with more users will derive more “value” based on the number of users. This stems from the concept of value based pricing, where you capture the value created by a solution as its price, as against cost based pricing where you charge a premium on your costs. While value is a nice way to put it, there is really another factor at play.
There is generally one fundamental driver of pricing and that is scarcity. You can see this easily in service businesses like restaurants, travel, fashion and luxury goods. There is a huge variance in the price you pay based on where you cut your hair, or where you have your meal. The reason you are willing to pay a higher price for an expensive meal is not because you value it more, because it is scarce. Rich people want to feel special, so they will eat at places that make them feel exclusive, that is, eat with other rich people.
When it comes to software, companies have been able to price themselves higher because good software is scarce, especially when it comes to enterprise. This is why enterprise software companies have consistently been able to price their software at very expensive rates. The outcome of this is that software is unnecessarily complex and out of reach of most small businesses.
Ending Scarcity with Open Source
While it is not totally unjustified (enterprises do have complex needs), this model is now being challenged with open source. Companies that grew up in the 21st century like Google, Amazon, Facebook, Apple are all built of open source software, not expensive closed sourced ones. They have been effectively able to tap the rich assets built by communities and build gigantic businesses around it. One of the key reasons they succeeded is that they did not have to pay for expensive enterprise software.
While open source is amazing, it has always been complex to implement for smaller teams and end users. This is slowly changing with more open source tools now becoming commercially available too. Frappe and ERPNext fall in this category.
Pricing Open Source
Ever since we started commercially supporting ERPNext, other than a brief period, we have also priced our services based on a per user model. As we meet more and more smarter customers who are already familiar with Open Source, they ask us the question. Why price per user? We are not selling a software license anymore and open source software is not really scarce, so why are we continuing with this old tradition?
This is why in 2022, we have decided to pull the plug on per-user pricing and go with flat pricing for our support based on the complexity of the engagement. We hope this dramatic move will end up becoming a game changer for commercial open source in the enterprise domain. With this pricing, we hope to reach out to a lot more customers than we could because the per user pricing was too expensive for them.
Our flat pricing is going to come at a premium on our support and services because we think we have exceptional people here at Frappe, and going by the logic of scarcity, exceptional people are scarce. Most of our investment goes into extending and maintaining our excellent Open Source tools so that you are guaranteed continued support through the years. Whatever size of business you are, our goal is to offer you outstanding software and support at a fixed price.
Welcome to the new world of software pricing, get in touch with our sales team to know more!
Rushabh is a software developer and founder of ERPNext. He usually writes about the startup experience, open source and the technologies he is working on.