What factors should be evaluated when determining a desktop software price?
Take it away, Mr. Spolsky: Camels and Rubber Duckies.
...One of the biggest questions you're going to be asking now is, "How much should I charge for my software?" When you ask the experts they don't seem to know. Pricing is a deep, dark mystery, they tell you. The biggest mistake software companies make is charging too little, so they don't get enough income, and they have to go out of business. An even bigger mistake, yes, even bigger than the biggest mistake, is charging too much, so they don't get enough customers, and they have to go out of business. Going out of business is not good because everybody loses their job, and you have to go work at Wal*Mart as a greeter, earning minimum wage and being forced to wear a polyester uniform all day long.
So if you like cotton uniforms you better get this right.
The answer is really complicated. I'm going to start with a little economic theory, then I'm going to tear the theory to bits, and when I'm finished, you'll know a lot more about pricing and you still won't know how much to charge for your software, but that's just the nature of pricing...
The market? Like any other product see what the going rate is for something similar. See if you can find trusted clients and ask them what they think it is worth.
Some factors to consider:
Is your market a small niche of users who really need this particular product, or mass market?
Can you divide the feature set into basic and premium (tiered pricing)
What are the obstacles to adoption, and what would it take to entice customers to dip their toe in the water?
Are there network effects, such that a high adoption rate makes the product more useful to other users, or is each customer isolated?
Are you trying to shift customers away from competing products or do you have an open field?
Will word of mouth or advertising be more effective at spreading the word?
Will you be providing frequent upgrades, and how will you distribute them?
What OS are you targeting?
Are the customers business, government, or consumer?
Can you sell subsidiary services, such as support, plugins, templates, etc.?
Can you leverage a community of users to help each other, and monetize the community via advertising etc., rather than the bits themselves.
Some factors I would consider:
- Going market price of similar software.
- Margin of profit you wish to make.
- Cost of bringing software to market (i.e. distribution costs).
- Third-party licensing costs (if third-party software is used).
Try to estimate approximate productivity gain of customers with the software in terms of currency. And also how much post-sale support you are offering. Combine that with your development, marketing and all other cost. You can also consider your reputation. Then you should get a reasonable price. Consider price points for different versions and number of user per licences.
I take it, you're entering a market with a well-placed competing product. So a big piece of the cake you want to get, is already using another product. For them, switching to your product represent an investment:
- Assuming, you provide a real alternative, it will probably take them a while to get used to.
- Anyone who chooses tools, attaches himself.
- They have already paid for the competitor's product.
Therefore, you should try keeping the actual monetary cost for switching low, and possibly provide some tutorials for users coming from the other product.
Pricing models you should consider:
- A subscription based payment model.
- Charging for upgrades.
- Charging for extra features.
In addition to what have been said:
A- Calculate your cost accurately (documentation, web site, licensing software, support) this is of course in addition to programming cost so that you set your break even price.
B- Make different license costs based on how many users are using your software. If you don't do that mid-size corp. users will not be tempted to buy the software.
C- Consider the total cost of ownership to the user. For example, factor in the cost of database, and any other costs the user is required to pay to make the solution work. Compare that with similar products (if any) on the Net.
People will pay whatever they think is a reasonable price.
You need to do a survey of similar products, customer needs for said software, and have a good sale team. I have seen software being sold for several tens of thousands per item and it be cheap. I have seen software being sold for $1 and it being an utter waste of money.
Pick your positioning strategy. Do you want to be:
- pricier but comes with richer features software provider?
- or cheaper and lesser features software provider?
- or be a sticky competitor, i.e. always following your nearest competitor foot steps in terms of selling price and product features. You could be slightly cheaper/pricier than others. Features imitation are always feasible, unless there are patents/legal barriers.
To quickly summarize the info from the article, pricing a product is hard to do in the first attempt (especially if this is your first product). The best thing to do is to start with a good guess and then optimize.
You need to think about your product and determine:
- what's the objective value of your product
- what's the perceived value of your product
- who are your customers / the size of the market
Objective value of your product is easy to determine: SavingsByUsingYourApp - AppPrice = Objective value. The perceived value is a little it more complicated:
Perceived value can be different than objective value, and it can affect sales in ways that the demand curve does not predict. For example, when buying a brand-name product, you are intentionally paying a premium because the perceived value is higher, even if the objective value is the same. Some brands purposely price higher in order to increase the perceived value and thus sell more.
You obviously need to determine who are your customers. Also, research the market and your competition. Sales and marketing strategies for selling an app to a big company are almost certainly different than selling e.g. a mobile app for kids.
License, with respect to the long tail.
Here are a few things to consider based on the information given:
- Price of a desktop computer. Never charge more than the price of a PC except for the Enterprise Edition. You don't want there to be sticker-shock.
- Cost of the Box. Nothing says, "Our company has been around a long time." than selling your software in a cardboard box. This should be no more than 10% of total cost.
- Number of programmers. This doesn't have to be the actual number of programmers who worked on your app, but the number you can make the customer "think" worked on your app. The more you have the higher the cost. Anywhere from 50 - 100 US Dollars per dev.
- Time to Boot Your App - The more software there is the longer it takes to boot-up is a software axiom for years to come. More software means more money. You will get back some of the losses due to extra hardware (See #1).
I realize these are just some general guidelines, so you may just want to consider $85.50 plus shipping and handling. What the heck, if you buy one now, you'll get another one free. Just pay the shipping and handling.