Transactional pricing algorithms for software licensing, web hosting and ASP agreements have enormous conceptual appeal. These algorithms rely on the sense of equity that balances cost with use, and comport with our common reference for retail. Vendors like this idea because of the easy sell and the potential increase in revenue from transaction levels that are higher than anticipated. Customers like the idea because cost increases are easily justified to higher management.

However, implementing the transactional pricing model can be very challenging. The first requirement is defining the term "transaction" in objective and unique units. Units of "visitors", "users" and "passwords" are problematic, while "purchases", "downloads" and "merchandise" always hold promise.

The second challenge is to set the price. If the customer under estimates the transacttion level and the unit price is too high, the resulting costs may disrupt the budget available to support the project. This is a very real risk because most transaction estimates come from users who estimate unrealistically low levels. Of course, high estimates result in lower than expected revenues for the vendor.

A unique challenge involves tracking and billing for each transaction. This process must be reliable and automated to insure accuracy. Users will want to be able to manage volumes using this facility.

Enforcement is a fourth challenge. If you have automated tracking and billing facilities, enforcement will be simplified. Nevertheless, be sure to include audting rights for an objective assessment of the actual transaction level.

Resolving these ambiguities to reduce uncertainty will take a thorough understanding of the customer business model and computer environment. Spending the resources necessary to complete this analysis is critical to making sure the variable dynamic of transacttional pricing meets the expectations of both parties.