Lately several discussions with consulting companies that have developed proprietary software tools as part of their toolchest and are now wondering if and how this could be turned into an additional revenue stream. Or where customers ask them to “leave the tools behind”. Which may be a good thing or not very good at all, depending on the specific circumstances.
Pricing software that you deliver in your consulting business
One thing is clear: The business of selling software products is very different from the business of selling billable hours. Which means that you need to be very careful and very precise in case you want to combine both business models.
There are a number of possible ways to approach this. Your best option will depend on your current market position, your strategic direction, your competitive environment, and on the specific nature of value-add that you deliver to your customers. Take a look at the following and see which works best for you.
“Proprietary tool chest“: You’re a consultant and you bring some special tools. They make your consulting services more attractive and more valuable. The existence of these tools is communicated to the customer with lots of oohs and aahs and pointing out of secret sauce. But the tools are not for sale and never will be. Only specialists of the highest order (i.e. you and your team) are capable of operating this extremely complex machinery. Ordinary mortals need not apply.
“Tools with service”: You’re a consultant and you have these tools. Your customer has seen them during the consulting engagement. There is an understanding that they will get value from deploying the tools even after the engagement has ended. But the tools really aren’t packaged all that well and so customer may have a hard time using them on your own. I’d address this by offering an ongoing services engagement charged at a fixed price per month with some kind of minimum duration and automatic renewal. It is then understood that the customer will get access to the tools, access to training and support, and access to any updates you may develop.
“Stand-alone tool licensing”: You really want to develop a complementary revenue stream and license your products. This means that you need to make the packaging investment necessary to convince the world that you mean it. Minimally this would consist of a product sheet, a licensing agreement, a price list for purchase or rental, a list of refefence customers, etc. Pay special attention to pricing and don’t be afraid to put an obscenely high MSRP in the price list. This is, after all, the result of many years of your intellectual and financial investment. You can always be flexible on the pricing if the situation warrants it. And make sure that you have a mandatory training and support services infrastructure in order to ensure that your customer uses your tools appropriately and that you catch potential satisfaction issues as early as possible.
One major pitfall to avoid are cases, where customer thinks that if they have your tools then they won’t need to buy your expensive services anymore. “Surely our in-house experts can take over.” Address by mandatory training, possibly even a certification program.