The Old Joel on Software Forum: Part 3 (of 5)

Software Pricing Structure

I've written some software that transforms files from one format to another. It's quite a specialised market, but its a useful transformation and I've had some interest already. I'm an individual without any kind of distribution network/staff etc at the moment. I've thought of a few ways to charge for it and I wonder which everyone would recommend with the goal of maximizing profit.

Plan A. Try to find an outright buyer, sell it with all rights and move onto my next great project.

Plan B. License the software to interested parties for a one-off fee, with limited support

Plan C. License the software for a yearly? recurring fee with a lot of support.

Plan D. Offer a webservice conversion, where each file is converted for a fee.

As far as licenses go - what's a good way to structure the price - per processor, per server etc?

There's a chance that some users might wish to include the software as part of their software package (typical cost of a customers distribution is about $10K-$50K). What kind of deal is common with this kind of arrangement?

Top Secret
Saturday, November 1, 2003

Plan A.

DEFINITELY Plan A, especially if this is your first software product.

A small profit now is better than a pipe full of unrealised dreams in ten years time.

Hmmmmm. Unless, that is, your name is Seattle Computer Products, and you have a disk operating system which a small company named Micro Soft is interested in buying.

HeWhoMustBeConfused
Saturday, November 1, 2003

I'd guess that without demonstrable sales figures plan A would get you 10x - 20x the sales price. It sounds like you may already have 3 customers without even trying.

What are you in this for?

Quick money - plan A
Big money - plan B, C, or D
Business experience - plan B, C, or D

As far as B, C, or D go...
You will be kicking yoursely if you undersell yourself... I would encourage you against B unless the initial sales price is high.

Plan D is too hard for some/most people, so it might be an option, but not the only option.

Personally, plan C sounds like a much better business model in this situation.

In order to think about this realistically, I'd highly encourage you to read "Thinking Like an Entrepreneur". (I have no conflict of interest in that recommendation.)

Scot
Saturday, November 1, 2003

Whichever route you take, you need some business experience or someone who has business experience to help you. Otherwise, you will screw up unless your buyer/customers are nice enough to point out the dumb things you are doing (which does happen occasionally).

I agree that A is quick money and (compared to the others) low effort. B, C and D will all get you good experience in running a business. If you pick one of these, start small: one customer. Offer two or three basic options, and flexibility in the details. Once you have one customer, add another. Then a third. By that time you'll have enough experience to open up to a larger audience. A few thoughts on the options themselves:

B - Good if you do not plan to upgrade the software or spend much time/effort on it beyond the initial sale. Customers won't want to pay much support for something unless they believe they're getting good value.

C - Good if you want to turn this into a fulltime business, and continue to develop the software. Customers are willing to invest more (base price and support) for a product that they feel will have some longterm legs.

D - A good option for customers who have to convert only a few documents or rarely have to convert. They maybe don't want to be bothered with installing and maintaining the software themselves, so it's more convenient and cost-effective for them to use a web service.

-Thomas

Thomas
Saturday, November 1, 2003

I know people who created a very good little business out of doing just this, in a niche market that has lots of money. This would be plan C.

They had developed some of the software. Then they went to the big users and offered to do consulting to install and customise their software, which they kept the rights to of course. Everyone benefited and they're doing well.

Saturday, November 1, 2003