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Why Software Companies Hide Pricing

Before I worked in the software industry, I often wondered why certain companies wouldn't list their pricing online.

If you've ever tried purchasing enterprise software, the process is often incredibly opaque and very frustrating. An individual has to "Request a Demo," schedule a call with a sales rep, and slog through 30-60 minutes before getting to a tangible number (which, of course, is infalted with the expectation of being negotiated down).

You'll notice this practice is especially common with companies selling B2B solutions to enterprise organizations, and for good reason.

I get asked this question fairly often now that I have worked in enterprise software for a few years and ironically hide our pricing online (this was recently asked in a YC forum, and I thought my response would be useful to share).

At a high level, there are three reasons why B2B enterprise companies don't publicly display pricing:

  1. These solutions often cost a lot of money, and the sticker shock of seeing the base monthly subscription may scare off a potential lead before they have a chance to listen to the pitch/value proposition, even when they might have been a good fit.
  2. SDRs will qualify the inbound leads in order to ensure that the company actually has a relevant use case with the solution before passing the opportunity over to the sales team to handle further demos and deal term negotiations. If there isn't a good fit, ending the engagement there will save both companies time.
  3. Hidden pricing enables software vendors to retain outsized control during the negotiations process. With asymmetrical information on pricing, opaque pricing gives account executives wiggle room during negotiations to strike so-called "deals" or "discounts" without being hindered by an anchor price that's publicly accessible.

So the next time you go into a pricing conversation, keep in mind that you as a purchaser will never fully know what goes on behind the "black box" of pricing when signing up with a company, as the true market rate for the software will forever be known only by the vendor.

And - should you commit to a contract - the negotiations are also designed to make you feel like you purchased the solution at a discounted deal. But this is also a good thing and a safety precaution, as the lead qualification process is built to protect the purchaser from buying a solution that isn't appropriate for their use case.

Hidden pricing is nearly universal in big ticket enterprise solutions out there (unless in a solution like CRM where it is often seat-based). It doesn't mean the product or marketing is any better or worse because the pricing is hidden.

I'm not sure if this will always be the case. Enterprise software vendors have held the advantage of information asymmetry against their purchasers for a long time now, but there are data marketplaces (G2 Crowd, GetApp, etc) that are starting to pop up to bring pricing transparency into the software-purchasing process. While noble in theory, I am uncertain of pricing transparency is a good thing for the buyer's market, as a high ticket price may dissuade cost-sensitive purchasers before a conversation. The relationship between pricing and quality is not always 1 to 1 in software, and the cheapest or most expensive option is often not the best fit - that's why the vetting and procurement process is critical to choosing a vendor.

Either way, I hope this helps shed light on why enterprise software pricing is often hidden. The next time you evaluate a software vendor, remembering why and how the vendor hides its pricing may assist your purchasing decision.

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