Eight ways to raise prices.

"Raising prices is one of the hardest things a company can do," says management consultant Jim Geisman, "especially when it looks like everyone else is slashing their prices. But if you can't improve your margins by cutting costs, the only other solution is squeeze more profitability and cash

Because customers often protest loudly whenever they see prices going up, Geisman says the best time to make changes is at the time of a new release, when it's possible to claim that the overall value equation has changed. "You'll still get complaints, of course, but one sign that you're on target with a price is that about 10% of customers will complain but still keep on buying."

Geisman recently shared the following eight software pricing tactics:

Try to get paid sooner: "Anything that accelerates cash flow has the same net effect as a price increase," Geisman points out. "And there are a lot of techniques for shortening payment cycles, such as sending out invoices earlier, setting payment terms to net 15, and offering early bird premiums and discounts." Similarly, he adds, most extended payment terms and consignment deals "are the functional equivalent of a price decrease."

Trim the discount structure: Whenever the majority of a company's customers qualify for a volume discount, says Geisman, it's usually a sign of a pricing structure that's too generous. One easy way to analyze a discount model is simply to count the number of transactions at various price levels. "A good rule of thumb is that at least 50% of your deals should be at straight-up prices," he says. "If your sales force is handing out discounts for routine purchases, your customers certainly don't have any incentive to buy extra volume."

Negotiate better deals: Another pricing rule of thumb, says Geisman, is that "any deal worth more than $500,000 will end up at a negotiated price." Customers know they have leverage in large deals, but it's usually possible to ask the buyer for a valuable concession--faster payment, a public endorsement, a follow-on commitment to buy--in return for any price cuts. "It never hurts to ask, and the buyer may decide it's easier to pay a higher price than to give in to all your requests."

Improve customer loyalty: "The new game in software is to think of products as an annuity," says Geisman. "Companies that inspire loyalty--and not everyone can--typically find their users are willing to pay 10%-15% more for individual upgrades, and spend more total dollars during the lifetime of the relationship. Over five years, companies with loyal customers probably earn twice as much annuity revenue than companies with grudging, reluctant relationships."