Software Monetization Maturity Model

As companies look to better monetize their offerings and generate more predictable recurring revenue, we see this as a journey rather than a specific project. The general approach for best practices follows what we call the "software monetization maturity model." As companies become more sophisticated in monetizing and automating their products, they progress along this curve.

Companies typically start with simple models, focusing primarily on achieving product-market fit within their industry. Delivering customer value takes precedence over monetization at this stage, making a perpetual-based model sensible.

As companies continue investing in their software, with an installed customer base and new features being released, they need compensation for ongoing development. This is where maintenance comes in—giving customers with perpetual licenses access to upgrades and new capabilities. Maintenance fees typically range from 15% to 25% of the original perpetual license cost, helping software companies monetize their continued investment.

Next, driven by financial needs, companies often realize they need a larger base of predictable recurring revenue, given the imbalance between large perpetual license payments and smaller maintenance fees. This typically leads to subscription-based models. We've seen many companies, like Adobe with Photoshop, transition from one-time license fees to annual subscriptions—a process that can take several years.

Once companies adopt the subscription approach, they often move toward targeting specific market segments with differentiated offerings. This might include a lower-end version for a broad user base alongside a premium enterprise edition for customers heavily dependent on their software.

The current transition we're seeing moves beyond simple subscriptions to include usage-based or value-based components. While customers seek demonstrable value from their software, they also need predictable expenses for annual budgeting. This creates an interesting dynamic: the desire for value-based pricing conflicts with the need for predictable costs.

As a solution, many adopt hybrid models combining a predictable base subscription with usage-based components layered on top. From the vendor's perspective, this approach balances fair compensation with encouraging wider software adoption within organizations. Usage-based models help expand their footprint through account penetration.

This balance between flexibility and predictability remains a work in progress. While people appreciate the flexibility of usage-based models, customers and vendors need predictability for expenses and for revenue. This framework offers a way to think about your software monetization journey, and we'd love to help you progress along this path.

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