We have been developing web software for sites we run ourselves. It’s pretty good, and we have had interest from other people wanting to buy it… but I have no idea how much we chould charge! We’d be selling, like, under 10 copies of it.
Actually, we’d be selling modules that perform specific tasks on their own, and that integrate with the other models we have made.
I know there is a school of thought that runs, if it’s working well for us, and it does not cost us anything to release it to the public domain, the community as a whole benefits - and so do we, as people will make changes to our code that makes it better for us as well.
That’s an option for us that I am considering. We’re not specifically money hungry, or desperate to sell the stuff, but mainly I was wondering how I calculate how much to charge people for something like this.
One thing you’ll need to determine is what value your software has to those eight or nine folks who might buy it. How much money will it make them? Or save them? What would it cost them to obtain the same functionality elsewhere?
Also remember to factor in the costs associated with supporting the software. No matter how well it runs for you, you’re gonna get calls about bugs and “I really need this feature” and “I didn’t know it worked like THAT.”
Whatever you’re thinking of charging, charge a lot more. Athena is right - I work for a software company with only 4 technical employees, and at least half our time is taken up with support inquiries, with another almost half going to installations, investigations into why the software won’t co-exists with program X on hardware Y over remote access product Z, and adding feature requests while making sure that it’s not going to break the software for anyone else who is using it.
Not to dissuade you from following this path, but it’s probably going to be more work than you think, so make sure you charge enough. If the software is as useful as you imply, companies aren’t going to mind paying for it.
There’s really only one way to know what to charge for it, and that’s to figure out what people will pay for it.
You do that by looking at what competitors charge, and what people typically pay in your general market segment. Is it shrink-wrapped and sold to consumers? that means a low price, anywhere from say $20 to $400. Is it for big enterprises? That could be in the hundreds of thousands or even more. Once you have a rough idea, then you ask potential customers what they’d pay. It’s all about demand of course. The more people want it, the more you charge.
Now that you know what you’ll charge for it, you’ll want to figure what it will cost you to sell it to them. If your costs are higher than what you’ll charge, that’s bad, and you don’t want to sell it. And of course as Athena pointed out, support is a big part of your costs; don’t underestimate that.
If your market size is truly 10, we have a problem. That’s pretty small.
t-bonham@scc.net’s link has a lot of good info on basic microeconomics. But the only two actual conclusions (don’t do site licenses, and keep your prices consistant) are highly debatable; I think it’s fair to say that most in the industry would disagree with both. But it’s good reading.
Think about support costs, and before you move your first unit, ask yourself some questions.
Do you want to sell the product with or without your services as an integration consultant?
If you have challenging customers. how much time would you be willing to provide them on the phone with your straightening out their sites?
How long do you want to offer that support for free? Do you want to still be giving the same customer help on his site in 7 years?
Factor all of this into your price. Here’s an imaginary pricing scheme that resembles what some companies use:
Year 1: You pay $10000 for the product, WebWigetOrderer 1.0. The first year includes a “Gold Level” support contract good for the first year. Any consulting help you need that you don’t need due to sheer stupidity or unqualified staff is free.
Years 2, 3, 4, 5, 6: You pay $1500/yr for a “Gold Level” support contract. Or, when it breaks, you can call and pay $400 per incident to get it fixed. Critical bug fixes are distributed to all customers for distribution cost, but patches that add features are not.
Year 7: Company drops support for product. Introduces new product. May offer discount for companies to come on-board with WebWidgetOrderer 2012 if they have 1.0, or not.
And for the recorder, I’m not suggesting YOU charge $10,000 for the product or $1500/yr for support. I’m just showing an example.
One more voice chiming in on the support issue. I spent quite a long time in the software industry. I developed a piece of software a few years ago for my own use that a couple of people expressed an interest in purchasing. I decided that as long as I kept it to myself, I could ignore any problems that didn’t really bother me, dump it if I stopped using it, make dramatic changes on a whim, and never worry about compatibility with old revs or anyone else’s product.
Once I sold a copy, I’d have to support it. Even if the customers virtually never called, I’d still have all the concerns of a commercial product. I decided I’d need to sell so darned many of them to make it worthwhile that I just wouldn’t bother.
I released a game as shareware once. In the true spirit of sharing, I had no nag screens or disabled functionality at all. Just, “if you like it, send me a check.” Despite thousands of downloads and quite a few emails from people telling me how much they enjoyed it, I received precisely one check. Bah.
I am very familiar with this process with my clients, and not to give you any type of specific advice, I will tell you this:
How difficult is it for others to procure that functionality? For ex, the last company I worked for would’ve payed an arm and a leg for J2EE functionality (scripting and such). Factor this into your pricing scheme.
How much did it cost you to develop it? You should price to try to recoup your costs.
As others have stated, support/maintenance is a huge cost. Do you plan to maintain it? If it is relatively maintenance free (and only a select few know this/can do this), then exploit your market and charge 22% (or more).
Pricing models do matter significantly as well as your target industry/company size. Bigger companies will pay more. Site licenses are ok if your licensing to large enterprise. Smaller companies can go by per user licenses. The trend for smaller software companies are to price at the enterprise level to get their foot in the door and make a name for themselves.
Think bigger. 10 copies of your software may be ok right now, but what kind of large application use could it have? You might have the next linux.
Which brings me to my final point. The last group of engineers I worked with had M$ installed on their production boxes. The software they were using was crushing the kernal, making the O/S highly unstable. They had great success with Linux, but God forbid should anything else go down because of massive lack of user support for Linux. Disclaimer: Yes, I know there is a huge community out there, and there are many dedicated/high traffic forums to discuss forums and troubleshooting, but when it comes to quick documentation and specific answers to these particular problems, searching the internet all day becomes less efficient.