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Pricing a Software Product
prostoalex writes "Eric Sink from SourceGear shares his experience on software pricing. Whether you're developing open-source or proprietary software, the money has to come into the business in some form, and the article suggests several strategies as well as the pitfalls for managing software pricing. Sink claims it's tough to compete on price, dangerous to run seasonal promotions and almost impossible to avoid criticism on being over-priced."
better color
Volume Pricing has its snag in how you handle customer Support. I didn't see that addressed (other than lightly under Tech Support), the higher the volume of sales the more need for customer support. Only so much can be down with a website FAQ. (Personally, I'm wary of products which don't come with printed manuals or a pdf with only a light treatment of the subject matter, back in the day manuals were your saviours, now they're some kind of afterthought that vendors seem uninterested in putting effort into.)
With inexpensive stuff you may lose all your profit on customer support, with pricing of support and/or a higher price nd lower volume there's less need for a large customer support team, or it grows as needed.
Granted, I've worked for people whe shelled big really big zorkmids on stuff and when it turned out to be crap, it wasn't the vendor to blame but headcount.
There's some discomforting truth to many of those Dilbert strips.
A feeling of having made the same mistake before: Deja Foobar
Sometimes I place more value on the service I get that on the product itself (software or not). A lot of software is moving to a hosted environment, and a lot of companies are starting to like the idea. Now you can use your service from your mobile device as well as at the office. So, instead of charging for the software, charge for the hosting. Develop and open source the product, then charge people to use the service in your hosted environment.
What I want to know is, whatever happened to supply-side pricing. You know, figuring out your cost to supply, and charging a reasonable markup based on that?
It's because of this that companies have to create artificial market distinctions, and why there is the prevalance of after-market modification. (Things like overclocking.)
I know it's a bit of an anti-establishment thought, but I'm not sure demand-side pricing is ethical. The whole idea of trying to take your customers for everything you can sounds so much colder when you look at it from their side.
And on taop of that, if you're a publicly owned company, not doing so might be considered criminal...
Unless of course you run a company, and have employees to pay. In that case, you can't always make a living off of service and support.
Tech, life, family, faith: Give me a visit
It was then a simple matter in Excel to figure out how to maximize our income, at what price point did we make the most money. It looked pretty much like the first chart in the article.
Then management ignores and sets a price accordingly!
Hate to be the part of the money-grubbing capitalist here, but money makes the world go 'round. If all software was free, why would anyone bother developing it? I know there are great free software products out there, and I know there are ways to make money off of software other than by selling it, but making all software free really doesn't seem to be a viable option. Let me put it another way...you're a software developer making a product - the final piece of software represents the work you've put in to devloping something unique and useful....how much is this effort worth? Nothing?
...no two people are not on fire.
So how should I price Hello World? I just wrote it in C.
Hmm, competition? No competition! You can find some software books that show you how to make your OWN Hello World, but who has time for that?
Some of those books cost 100 Dollars or more... So that I dont look like an "underdog" im gonna charge $250 dollars. Even better, I could convert Hello World, into Hello World for Workgroups, change the font to something a little more professional, and sell it for $325 plus maintenance and security fees.
Uh, for Windows you are correct. For office, you're partially correct. But for all of their other programs, Microsoft has direct competition from many sides. Sink even gives an example...where an ISV has created a product that competes with Access built on Open Source technologies.
"So what is the right price range?
This question is the point where most small ISVs will wimp out. "We don't have the Microsoft name." "Our product is less mature." "We feel inferior, so obviously our price has to be lower than theirs."
Bzzzt! Wrong answer. The right answer is: "A lot more than $229."
Basically, Sink is telling ISVs to grow a backbone and realize that the first step isn't competing with Microsoft on price (mostly for the reason you're talking about, MS can just drop the price and thus drop the usefulness of your software) but finding the area in which their product is SUPERIOR to Access and leveraging that.
It's good advice. Because by doing this, you encourage people to move away from Access while at the same time increasing itnerest in your product.
We have a local car dealer who did a commercial claiming that the Hyundai luxury sedan looks "just like" the Jaguar only it costs much less. Needless to say, we laugh our ass off at that commercial. A Hyundai is not a Jaguar only cheaper...it's a Hyundai attempting to LOOK like a Jaguar. Too many low-cost programs suffer from trying to look like a Jaguar, when what they really need to do is analyze what it is about the Jaguar that makes it attractive and what can be gleamed from that and added to that to approach the market from a different direction.
Our company writes software for a saturated niche, but does alright because we look at things from a different perspective. Rather than just allowing our customers to enter and store data with a weak search engine, we allow them to enter it quickly, search it powerfully and associate it meaningfully. Our price is higher for that reason -- and yet we have more customers.
Hey freaks: now you're ju
A good price depends on your target audience.
For the average Joe: $20 or under will get impulse buys ("Not that much if it ends up sucking"); over $50 means they'll only buy it if they already know they want it; Over $250 will only get those who really need it and have done some decent research into alternatives. Over $1000 means you can guarantee that everyone will pirate it without even feeling bad ("At that price, I didn't count as a potential customer anyway").
For teens and older kids, drop those to $5, $20, $50 (yes, the average price of a game) and $100, respectively.
For business customers, the scene changes a bit. A very small business may behave like a somewhat more well-to-do average Joe. Once layers of accountability start appearing, though, the low and high categories vanish - No impulse buys, and no piracy. For that reason, as the business gets bigger, the potential price does as well, almost without limit. Keep in mind that the higher the price, the fewer your potential customer base, though.
Yes it takes a lot of work to come up with original ideas. But not so surprisingly you can give away ideas, and most people wouldn't know what to do with them. Then you turn around and charge them to show them how it works. :)
Software pricing = (DC + RC + P)/EUS ...where DC = Development Costs, RC = Residual Costs (support, maintenance, etc), P = Profit, and EUS = Expected Unit Sales.
Obviously, if you are selling to a wider audience, the software can be cheaper. This is why niche software like AutoCAD is so expensive.
Life is the leading cause of death in America.
I used to work on a server data replication product.
There are many tales to tell about this debacle (I think the vendor has long since cancelled or put it on maintenance mode) - but there was a point where we raised our price from $250/server to $5000/server, and the ONLY change in the product was a name change. No new features were added. Hell, we didn't even update the GUI. Saled jumped 20% that quarter. (unfortunately it was not to be sustained).
The reasoning was, the Market didn't take us seriously at $250/server because all of our competitors were priced in the $5000/server range.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.
An oldie but a goodie (and humorous too) from Chuck McManis on software pricing for the little guy.