Hitting the Profit Target

When our CEO Jim Ryan discusses Flexera’s approach to re-imagining the business of software, he often points out that “The software supply chain is undoubtedly the single most dysfunctional supply chain in all of industry today.”

Here, I’ll briefly explore the importance of developing a monetizable software product first before it hits the supply chain.

It’s no secret that software producers are challenged now more than ever with finding innovative ways monetize their products:

• 72% of all new products do not achieve their profit target
• In 25% of companies, all products fail to meet profit target[1]

Also, with non-traditional software producers entering the market looking for new revenue streams, the percentage of missed profit targets is likely to be even higher.

So, what can be done to minimize the risk of lost profit opportunities?  At Flexera, our methodology recognizes this challenge and is centred around three inter-acting core tenets, i.e.

During our Customer Success Framework workshops, I continuously use to these as touchstones to develop go-to-market strategies and policies.

Corporate Business Drivers & Principles

Sometimes at the start of profit planning, business drivers and guiding principles can get over-looked. This is particularly true for organizations that are new to the software game and have a different background like, hardware and device manufacturing.

C-level sponsorship, alignment and communication are the keys to success. If you can validate and define both the drivers and principles, you’re well on the way to minimizing the risk while ensuring:

• The product is fit for purpose
• The associated market climate is well understood and addressed
• The product represents value to customers
• Customers are prepared to pay a price that is fair for them and you

Product & Market Climate

Historically, the approach to software product development has not been primarily based on the customers’ needs. The thought process behind this traditional approach – if you build a great new software product, customers will pay a fair price for it. 

I would argue this is a flawed high risk ‘belief’, product centric and potentially detrimental to addressing the customers’ needs.

You need to know very early, before you invest significant time and money, that the customer actually needs the product and, if they do, what they are prepared to pay for it?  The outdated product- focussed approach addresses these key questions far too late in the development cycle.

Customer Needs

Inherently, successful product selling needs to ensure that the product is of value to the customer and they are willing to pay (WTP).  Therefore, the optimal approach is to design your products centred on the value to the customer, i.e. Customer – Value or Willingness to Pay – Price and Product.

 Conclusion

The message is clear, while you need a good product, unless you establish the value to the customer and what he is willing to pay, you run a high risk you could be one of the 72% who do not achieve their profit target.

Next, it’s key to monitor actual take-up and usage of the product.  This information allows you to adapt the product – take out unused features and develop ones of real value to the customer.

It’s also important to understand who your customers are and, if necessary, ensure your product offerings are wider than a single product to meet the demand of different market segments.

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[1] IDC Global Pricing Study 2014;