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 flow out of every sale--which means raising prices."

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

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."

Sell a total solution: Increasingly, Geisman points out, the highest-value products provide a "total solution"--which typically includes installation and customization, add-ons, information resources, and integration with the rest of the customer's business systems. "The more help you provide with these pieces, the less time and money the customer has to spend getting the software to work. And your prices can reasonably reflect those savings."

Strip out high-cost components: "Customers with beer tastes and beer budgets won't pay for champagne," Geisman notes. But often they will keep paying traditional prices for a product that no longer includes free support, a printed manual, or features for specialized customer types. "If you can sell these components separately, you've effectively raised prices without rocking the boat."

Move up to a natural price point: Especially in mature markets, customers often have clear expectations about what software and services should cost, Geisman points out. "If you're selling below these prices, or if you're in a so-called 'dead zone' between standard price points, you can almost certainly move up without triggering any pushback."

Create an image of high value: "If you want to keep your prices up," says Geisman, "make sure the product reeks of desirability. Tasteful collaterals, packaging, ads, sales people, voice mail--make it clear that you and your customers both belong to a very exclusive club with proven membership advantages."

James Geisman, president, Marketshare, 35 Main St., Wayland, Mass. 01778; 508/647-0330. E-mail: jgeis@moreshare.com.