Why Software Companies Hide Pricing

If you've ever tried purchasing enterprise software, the process is often incredibly frustrating.

First, you have to "Request a Demo" after realizing that the company doesn't publicly post the pricing (seriously, why bother with a pricing page then?!). The, you'll schedule a call with an SDR who in turns qualifies you if your company is a good fit before they'll even consider showing oh-so-lucky you their software. And, assuming you haven't quit in a storm of fury yet, you'll slog through an hourlong demo with an account executive before receiving an inflated number with the expectation of several rounds of negotiations.

Now that I've spent some years on the opposite end of the table, there is reason to this infuriating ordeal. As I answered this recently to a group of YC founders, I thought it would be fun to share.

There are 3 usual reasons why software companies who rely primarily on enterprise customers for revenue 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.

Having since written this, 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 CrowdGetApp, 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 procurement process.