Challenging the Status Quo: The Rise of Value-Based Pricing in Enterprise Software
Ashish Nayyar is a visionary leader in enterprise software pricing, renowned for collaborating with C-level executives to drive transformative pricing strategies that align business value with measurable customer outcomes. His expertise in value-based pricing have consistently enabled organizations to achieve sustainable growth, industry differentiation, and long-term success. Ashish Nayyar is currently Head of Pricing Excellence at IBS Software.
The global enterprise software market, set to cross the $1 trillion mark in 2024, is undergoing a transformative shift towards value-based pricing (VBP). Traditional pricing models, rooted in cost-plus or market-driven strategies, are losing relevance as businesses recognize the competitive advantage of aligning prices with the value delivered to customers. VBP has emerged as a disruptive force, reshaping how enterprise software companies price their offerings across a wide spectrum, from core operational systems to cutting-edge innovations.
A Revolution in Pricing Strategy
By adopting VBP as a compelling alternative to traditional pricing, software providers ensure their pricing reflects specific business outcomes such as increased efficiency, cost savings, or revenue generation. For instance, United States-based leading cybersecurity firm CrowdStrike aligns its software pricing with the reduction of security breaches and downtime, offering a transparent, outcome-driven model. This ensures that customers pay only for the measurable benefits the software provides, aligning their investment with business gains.
Innovative Approaches in Value-Based Pricing
Many enterprise software providers are exploring AI-driven dynamic pricing models, using real-time data and customer behavior insights to optimize pricing. Companies like Snowflake, an American data storage provider, use tiered, pay-as-you-go models that calculate costs based on how much value customers derive from the platform. These models leverage machine learning to assess customer behavior, optimizing pricing structures based on real-time usage and outcomes.
Another emerging trend is performance-based pricing, where payments are tied directly to measurable business improvements, ensuring clients pay only for successful results. ServiceNow, an American software company, uses a subscription-based model tied to the specific productivity gains its platform delivers. Clients pay based on the number of workflows automated and streamlined - again focusing the pricing conversation on the value received rather than software licensing or usage.
The Bold Step Toward Value-Based Pricing
One powerful example of VBP in action is at Nucleus Software, an India-based fintech company serving the BFSI sector globally. About a decade ago, Nucleus’s pricing didn’t fully capture the immense value delivered to clients. I spearheaded a strategic overhaul, developing a custom Value-Based Pricing engine to link pricing to measurable outcomes like operational efficiency and cost savings. Over the years, this engine has driven new deals, ensuring pricing accurately reflects the value provided.
In a decisive move, I harnessed the power of the VBP engine to completely overhaul the Annual Maintenance Contracts (AMC) for existing customers. This was far more than a pricing adjustment it was a strategic realignment to capture the true business value delivered to the clients. The result? A staggering 368% surge in profits, a 66% increase in revenue, and a remarkable boost in company valuation, transforming Nucleus Software into a multibagger stock between FY 2022 and 2024. This bold shift not only amplified company’s financial performance but also deepened customer loyalty, positioning the company for long-term, sustainable success.
This transformation demonstrates how value-based pricing, powered by innovation, can reshape business models, linking pricing with real value to drive growth and deepen client relationships.
Looking Ahead
The enterprise software sector is on the cusp of a pricing revolution, with VBP leading the way. By focusing on measurable customer outcomes, companies adopting this model will build stronger customer relationships, enhance profitability, and stay ahead of competitors.
But the key lies in continuous innovation - whether through AI-driven dynamic pricing, outcome-based contracts, or tailored pricing models for specific customer segments. Experimenting with and refining VBP strategies is essential for companies seeking to fully harness the power of this model and thrive in the trillion-dollar market of tomorrow. The shift is here, and those who embrace it will be the leaders in the next era of enterprise software.
The global enterprise software market, set to cross the $1 trillion mark in 2024, is undergoing a transformative shift towards value-based pricing (VBP). Traditional pricing models, rooted in cost-plus or market-driven strategies, are losing relevance as businesses recognize the competitive advantage of aligning prices with the value delivered to customers. VBP has emerged as a disruptive force, reshaping how enterprise software companies price their offerings across a wide spectrum, from core operational systems to cutting-edge innovations.
Many enterprise software providers are exploring AI-driven dynamic pricing models, using real-time data and customer behavior insights to optimize pricing.
A Revolution in Pricing Strategy
By adopting VBP as a compelling alternative to traditional pricing, software providers ensure their pricing reflects specific business outcomes such as increased efficiency, cost savings, or revenue generation. For instance, United States-based leading cybersecurity firm CrowdStrike aligns its software pricing with the reduction of security breaches and downtime, offering a transparent, outcome-driven model. This ensures that customers pay only for the measurable benefits the software provides, aligning their investment with business gains.
- Higher Profitability: By charging based on customer success, VBP allows for flexible pricing that scales with the software’s impact on a business.
- Customer Alignment: VBP fosters transparency and trust, showing that customers are paying for the results they receive.
- Scalable Flexibility: As software evolves and adds features, VBP models can be easily adjusted to reflect new value propositions without a full contract renegotiation.
- Differentiation: Companies using VBP stand out from competitors by focusing on the specific value their solutions deliver, helping move the discussion away from price wars.
The Benefits of Value-Based Pricing
Innovative Approaches in Value-Based Pricing
Many enterprise software providers are exploring AI-driven dynamic pricing models, using real-time data and customer behavior insights to optimize pricing. Companies like Snowflake, an American data storage provider, use tiered, pay-as-you-go models that calculate costs based on how much value customers derive from the platform. These models leverage machine learning to assess customer behavior, optimizing pricing structures based on real-time usage and outcomes.
Another emerging trend is performance-based pricing, where payments are tied directly to measurable business improvements, ensuring clients pay only for successful results. ServiceNow, an American software company, uses a subscription-based model tied to the specific productivity gains its platform delivers. Clients pay based on the number of workflows automated and streamlined - again focusing the pricing conversation on the value received rather than software licensing or usage.
The Bold Step Toward Value-Based Pricing
One powerful example of VBP in action is at Nucleus Software, an India-based fintech company serving the BFSI sector globally. About a decade ago, Nucleus’s pricing didn’t fully capture the immense value delivered to clients. I spearheaded a strategic overhaul, developing a custom Value-Based Pricing engine to link pricing to measurable outcomes like operational efficiency and cost savings. Over the years, this engine has driven new deals, ensuring pricing accurately reflects the value provided.
In a decisive move, I harnessed the power of the VBP engine to completely overhaul the Annual Maintenance Contracts (AMC) for existing customers. This was far more than a pricing adjustment it was a strategic realignment to capture the true business value delivered to the clients. The result? A staggering 368% surge in profits, a 66% increase in revenue, and a remarkable boost in company valuation, transforming Nucleus Software into a multibagger stock between FY 2022 and 2024. This bold shift not only amplified company’s financial performance but also deepened customer loyalty, positioning the company for long-term, sustainable success.
This transformation demonstrates how value-based pricing, powered by innovation, can reshape business models, linking pricing with real value to drive growth and deepen client relationships.
Looking Ahead
The enterprise software sector is on the cusp of a pricing revolution, with VBP leading the way. By focusing on measurable customer outcomes, companies adopting this model will build stronger customer relationships, enhance profitability, and stay ahead of competitors.
But the key lies in continuous innovation - whether through AI-driven dynamic pricing, outcome-based contracts, or tailored pricing models for specific customer segments. Experimenting with and refining VBP strategies is essential for companies seeking to fully harness the power of this model and thrive in the trillion-dollar market of tomorrow. The shift is here, and those who embrace it will be the leaders in the next era of enterprise software.
