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  • Writer's pictureJoel White

100 Thoughts on Pricing: #12

Technology products have a cost rate too, and you should model it into your pricing gross profit estimates if technology is a material amount of your revenue. Sure, there is close to zero marginal cost for a client to go from the 95th to 96th user license, but think about going from 100 users to 200 to 600 to 800. What costs does your business incur from scaling to support those levels of users? How can you break that down into a per-(user, month, year, device, etc.) cost?


Those costs may not scale in a neat linear fashion in those scenarios, but you need to do your best to estimate those cost rates and improve that modeling over time. How precise you should get depends on how high a proportion of your pricing / revenue comes from technology products.


The alternatives are 1) to exclude technology fees and margins from your gross profit estimates, which result in understated estimates and disincentivizes teams to highlight your technology offerings to customers, or 2) to include them at 100% margins, which overstates your margins. Neither option helps you make smarter pricing decisions.


Technology products incur marginal cost, and should be modeled into your pricing profitability estimates.



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