Distribution Software Guide
It does not matter where you are in your software buying process or who you are. It can be overwhelming and sometimes confusing. I’ve purchased and sold software ranging from a few hundred dollars to millions of dollars. It was never a point and shoot decision. Even when I had to buy a small 5 user license the options were many and the decision not very easy. After all, even if you have a few users you still have to place your whole company in that software.
This is why I set up this site. To help you ask the right questions and to look for the right answers. It is not a step by step decision making process because I don’t know your business. It’s a guide to help you make your own step by step decision.
First of all I recommend that you do a RFI (Request for Information), a RFP (Request for Proposal), and as you move forward Pricing Brake Dows and Contract. We’ll go over each one as we move forward.
Distribution Pricing Examples
Let’s start with Pricing, it’s what most of us want to see first and will consider in our decision.
The first thing you should consider in the Price is the Value. Don’t just see the price of the software because you will not buy anything. If you think you are paying for a CD worth $0.50 for example, it will be hard to spend the money. Software is a value based product. The difficulty in buying and knowing what to spend comes with finding the value of the system.
For example, if you are looking for CRM (Customer Relationship Software) for your Wholesale Distribution business and know that once you can apply it your salespeople will be more productive and call on 10% more customers because they are not fumbling with Excel and Outlook for pricing information and phone numbers. Now put a sales number to that 10%. Now let’s say that your new software costs 1% of that 10% increase per month, that could be a substantial amount of money, but then again, you did not have that money.
That’s an easy example of Value based Software Purchasing. It’s a very simple example. Now let’s jump to the types of pricing you can encounter out in the Wholesale Distribution Marketplace.
Many companies use more than one pricing strategy at the same time. For example, you might buy a software, install it in-house and pay a server license, user license and module license fee.
Monthly Service
This is typical of web based software. You pay a monthly fee to use it. Sometimes there are no upfront fees, sometimes you have to configure the software and you pay consulting for that configuration and importing of your data.
Monthly fees can vary; here are some examples of how software companies use the “Monthly Service Fee”:
§ Priced Monthly but you pay yearly
§ Monthly fee per User (sometimes with a minimum of users)
§ Monthly fee per Module
§ Monthly fee per Module per User
§ Monthly fees with limited amount of storage space
§ Monthly fee for limited amount of products, companies or names
Module Pricing
Many systems are very large and you don’t need to use every single feature and every single module. This type of pricing let’s you use what you need. You pay for the modules of the software that apply to your business or that you would like to use. Modules of a software system could be:
§ Sales
§ Accounting
§ Shipping
§ Route Management
§ Receiving
§ Warehousing
§ Import-Export
User License
This type of licensing is where you pay per every user. For example, if you have 35 employees in a company and are buying an accounting package to fit your 5 employees in accounting you would pay only for those 5 users. This type of license can be done per user per month or per user “forever” where you actually buy the user license.
Server License
The server license is used when you install the software in-house. You would pay for every server that carry’s the software. So if you have 4 warehouses or plants you would probably have to pay for at least 4 Server Licenses.
Maintenance
Most software systems have a maintenance fee that you pay annually or quarterly. This fee can range from 5% to more than 20% of your original purchased price depending on the software and what they offer. Sometimes it includes support, updates, or upgrades.
Consulting
Unless you are buying an easy to use out of the box application you will need some kind of service, consulting, installation or training. This is one of the most subjective parts of the software because most companies are slow to learn and apply new systems. Consulting is typically charged per hour plus traveling expenses. Depending on your software consulting could be from a few hours to a few years. Make sure to talk this over carefully with your providers and ask for similar installation case studies.
This is why I set up this site. To help you ask the right questions and to look for the right answers. It is not a step by step decision making process because I don’t know your business. It’s a guide to help you make your own step by step decision.
First of all I recommend that you do a RFI (Request for Information), a RFP (Request for Proposal), and as you move forward Pricing Brake Dows and Contract. We’ll go over each one as we move forward.
Distribution Pricing Examples
Let’s start with Pricing, it’s what most of us want to see first and will consider in our decision.
The first thing you should consider in the Price is the Value. Don’t just see the price of the software because you will not buy anything. If you think you are paying for a CD worth $0.50 for example, it will be hard to spend the money. Software is a value based product. The difficulty in buying and knowing what to spend comes with finding the value of the system.
For example, if you are looking for CRM (Customer Relationship Software) for your Wholesale Distribution business and know that once you can apply it your salespeople will be more productive and call on 10% more customers because they are not fumbling with Excel and Outlook for pricing information and phone numbers. Now put a sales number to that 10%. Now let’s say that your new software costs 1% of that 10% increase per month, that could be a substantial amount of money, but then again, you did not have that money.
That’s an easy example of Value based Software Purchasing. It’s a very simple example. Now let’s jump to the types of pricing you can encounter out in the Wholesale Distribution Marketplace.
Many companies use more than one pricing strategy at the same time. For example, you might buy a software, install it in-house and pay a server license, user license and module license fee.
Monthly Service
This is typical of web based software. You pay a monthly fee to use it. Sometimes there are no upfront fees, sometimes you have to configure the software and you pay consulting for that configuration and importing of your data.
Monthly fees can vary; here are some examples of how software companies use the “Monthly Service Fee”:
§ Priced Monthly but you pay yearly
§ Monthly fee per User (sometimes with a minimum of users)
§ Monthly fee per Module
§ Monthly fee per Module per User
§ Monthly fees with limited amount of storage space
§ Monthly fee for limited amount of products, companies or names
Module Pricing
Many systems are very large and you don’t need to use every single feature and every single module. This type of pricing let’s you use what you need. You pay for the modules of the software that apply to your business or that you would like to use. Modules of a software system could be:
§ Sales
§ Accounting
§ Shipping
§ Route Management
§ Receiving
§ Warehousing
§ Import-Export
User License
This type of licensing is where you pay per every user. For example, if you have 35 employees in a company and are buying an accounting package to fit your 5 employees in accounting you would pay only for those 5 users. This type of license can be done per user per month or per user “forever” where you actually buy the user license.
Server License
The server license is used when you install the software in-house. You would pay for every server that carry’s the software. So if you have 4 warehouses or plants you would probably have to pay for at least 4 Server Licenses.
Maintenance
Most software systems have a maintenance fee that you pay annually or quarterly. This fee can range from 5% to more than 20% of your original purchased price depending on the software and what they offer. Sometimes it includes support, updates, or upgrades.
Consulting
Unless you are buying an easy to use out of the box application you will need some kind of service, consulting, installation or training. This is one of the most subjective parts of the software because most companies are slow to learn and apply new systems. Consulting is typically charged per hour plus traveling expenses. Depending on your software consulting could be from a few hours to a few years. Make sure to talk this over carefully with your providers and ask for similar installation case studies.
Who Can Benefit?
Our website is used by companies looking to buy and set-up their software solutions and by software companies looking for different, fair and creative ways to price their new or existing products.
Need My Help
Make sure you contact me if you have any questions or would like help in setting up your pricing models or analyzing and procuring software.
Copyright © 2006-2007 by Jorge Olson • All Rights reserved
Distribution Software Pricing Models