The Old Joel on Software Forum: Part 4 (of 5)

Pricing conclusion

After all the discussion on pricing I though I would share my recent experiences with you.

Well, it's the first sales pitch tomorrow and I've needed to come up with a pricing strategy over the last couple of weeks for our product. Boy it's been hard! And that's just so I can show this customer what a deal he's getting compared to the normal prices! We know how much we're going to charge him but we have had to do a load of work to calculate what the official figure is going to be.

(if you don't hear from me for a while you'll know tomorrow didn't go too well!!)

Product is really 'consulting-ware' at this stage and we are typically aiming at the medium to large enterprises.

It's comprised of a server component and this is accessed by a client API. There is also a Windows forms-based GUI which does it's work through the client API.

As it's used for managing meta-data about things in the organisation there's a big reporting requirement and we expect that customers will develop their own reporting on the intranet or integrate it with existing reporting on the intranet.

Therefore our customers are likely to have a number of GUI users but some of the information is likely to be available, via the Intranet to the entire organisation.

We obviously have to cater for all these occurences and make sure we get fair price for the product regardless of how the customer chooses to use the product.

So, the pricing structure we've agreed is:

Named-User licence - required for each accessor of the client API - £100

GUI licence - required for each GUI user. Also need a Named-User licence - £675 (1-20) £600 (21-50) £525 (51+)

Server reporting licence - gives ability to extract (read only) data via the client API for publishing across the organisation - £10,000.

Maintenance (upgrades and support) - 18%.

This has been fairly scientifically worked out (by testing all combinations, comparing with similar enterprise products in the market, allowances for new company etc.)

A typical 100 user GUI installation would therefore cost in the order of £67,750

A small 10 user GUI installation but where the information is published site-wide would cost £17,750.

A small 10 user GUI installation who don't publish the information woud be £7,750 (good for SMEs)

An installation of 300 users not using the GUI but their own bespoke access (therefore requiring read/write through the client API) would require 300 Named-User licences = £30,000.

Bearing in mind the work I'm doing for this first pitch, and that we haven't had to advertise for this opportunity I think the regular cost of landing a customer is going to be several thousand pounds.

We're offering a special deal for this company as an early adopter (will probably cost them 50% overall)

It's bloody hard to balance the prices out!

And then you have to consider the consultancy. For the first customer we're proposing 20 days to model their requirements in terms of setup and develop some bespoke reports. There's then probably another 60 days or so of consultancy to integrate it with their existing product set and intranet.

And if we're REALLY lucky, we may just get enough income to keep four of us employed at a bit above minimum wage for 6 months to try and develop the product further and get some more sales. Except none of us really know anything about sales and marketing yet.

Any potential investors out there?!!!

Gwyn
Thursday, March 4, 2004

> And if we're REALLY lucky, we may just get enough income to
> keep four of us employed at a bit above minimum wage for
> 6 months to try and develop the product further and get
> some more sales. Except none of us really know anything
> about sales and marketing yet.

To be frank then why bother?

You want to price it high enough so that if it succeeds you will earn a lot of money, otherwise it's not worth your time and risk.

Matthew Lock
Thursday, March 4, 2004

Can I recommend this book: "The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It"

http://www.amazon.com/exec/obidos/tg/detail/-/0887307280/104-3568174-6796752?v=glance

It's a bit silly in places, but I think you guys would benefit from it's message that a good business plan is what most small businesses most need.

Matthew Lock
Thursday, March 4, 2004

Is there any other way to start out?

Gwyn
Thursday, March 4, 2004

> It's a bit silly in places, but I think you guys would benefit from it's message that a good business plan is what most small businesses most need.

I agree. A business plan is a necessity.

However, a business plan requires all sorts of information that most of the time you can't provide without at least some experience.

You need to work out how many sales you can make. And I defy anyone to be able to calculate that in the IT market without being 1000% out apart from due to good luck.

If you've got any advice, on how to work out how many potential global sales you can make in a horizontal market, with competitors who don't publish prices, with a product that in some ways is a bit like other products but in other ways is totally different, then I want to hear it!!!!

Gwyn
Thursday, March 4, 2004

Gwyn, your figures make sense. Twenty percent annually for maintenance is a standard figure. You've got four guys, which should send a message of solidity.

In terms of business plan, all it really means for an organisation of your size is knowing roughly what you're developing, who you think will buy it, and why. Then you have to work the figures to pay yourselves.

These sort of deals typically depend on some middle manager being satisfied he's not going to look silly later on, for choosing you. Business cards, title, documentation, offices, good phone answering, brochure and reference sites (or the equivalent) will see you looking sweet.

Must be a Manager
Thursday, March 4, 2004

"As it's used for managing meta-data about things in the organisation there's a big reporting requirement and we expect that customers will develop their own reporting on the intranet or integrate it with existing reporting on the intranet."

I hope "things" is vague for confidentiality reasons and that's not your real sales pitch. [grin]

IMHO, $100k+ is pretty steep for consulting-ware.

As for the "no reporting out of the box" - I think you'll lose right there. The people that write $100k checks want to see things. They don't want to hear vagaries and see powerpoints and visio diagrams. Throw five or ten reports in the box and they'll pay for themselves quickly.

Philo
(These opinions are solely mine and do not reflect the position of Microsoft)

Philo
Thursday, March 4, 2004

On the reporting, I agree. You're going to need some reports (if only to drop that "No reports" item off of the spec.) Now that doesn't mean that the reports are going to be useful to them - a couple of almost data dump reports and several high level summaries (read record count type reports) will give you some reporting - and it'll give them something to start baseing their requirements for their custom reports.

Alway give an option for doing custom reports (lots of additional work), and always do custom reports as T&M. (the longer they take to fine tune their formulas, the more you make. And it may surprise you how long it will take them.)

Unfocused Focused
Thursday, March 4, 2004

"However, a business plan requires all sorts of information that most of the time you can't provide without at least some experience."

IMHO, that's the POINT of a business plan: not to provide answers but to provide QUESTIONS.

I.e., a good managment consultant (like a good therapist) doesn't have the ANSWERS, they have the right QUESTIONS.

The real Entrepreneur
Friday, March 5, 2004

Reports! Huge issue. I worked many years in consulting shops developing custom apps (new ones, very little maintaining old ones) and in EVERY design meeting with a customer I or anyone I talked to ever had, at some point the customer would eventually ask "What about reports? What about security?"

Report and security, they are checkbox features, got to have little check marks next to each.

Between us consultants it was a running inside joke: anytime we were designing even the smallest of features someone would eventually chime in "What about reports! What about security!". Then we would all laugh. Oh, the good ole days!

Ken Klose
Sunday, March 7, 2004

Out of the box it does simple queries which will be enhanced shortly to do complex queries (query builder type functionality) which you can save for reuse.

Reports are often created from a set of queries and this requires either bespoke reports to be created which we can do or they can do, using published interfaces, if they've got .NET skills.

gwyn
Sunday, March 7, 2004