Pricing Complexity Must Be Less Than Sales Cycle Complexity

[Sparked by a call from Erik Charles from the UC Irvine Business School]

Pricing is almost always a pain to decide on.

Among many issues, one important one is striking a balance between:
– Simplicity, which reduces sales cycle transaction costs such as time spent on pricing education and negotiation, and
– Complexity, which enables you to maximize revenue per contract.

This leads me, and hopefully you, to a simple conclusion:
Pricing complexity should never be greater than the sales cycle complexity.

If you sell a complex product, you can afford to make pricing complex – price negotiation is an acceptable transaction cost of a larger deal. But for a simple solution, the transaction cost of having to negotiate complex pricing for each customer outweighs any the benefit of maximizing revenue per customer. Pricing becomes a bottleneck.

Does the transaction cost of your pricing complexity outweight any additional revenue it might be able to bring in? Would simplifying your pricing reduce sales cycle costs and increase deal speed?