How to value and put a price on software (license)

Question

In my company we often value the software to be almost the same as concurrent software on the market. While this is one way I'm interested of other (maybe more academic) ways of value and put a price on software.

Any ideas or methods that have been succesful for you?

Solution 1

I've done some contract work in the past, and I based my estimate on:

• The cost of the man hours to produce the software, from start to finish
• Potential money the client saves by using the software
• Cost of any planned support for the software
• Any other related costs such as installation fees, documentation, training, etc.

Then I compared that to the industry standard. In my case it was usually cheaper, and I still made money. Thus both the client and myself were happy.

Edit:

Mind you the above method is for a single client, with a custom software solution, and a simple unlimited-use license.

Solution 2

While I'm not always a fan of Joel, this crusty old article from 2004 answers your question very well. You charge based on how many units you think you will sell at that price, with the goal of maximizing profit.

Solution 3

If you want to know academic methods for pricing a product, I have an MBA I would like to sell you.

Seriously, it depends on a lot of things. Are you selling a service, subscription, or a "box"? Where is your desired position in the market? What do your customers have to spend?

Listen to your customers and be prepared to change your pricing strategy. If you ever hear a customer say, "Wow, I was expecting to pay more!", it may be time to raise your prices significantly.

Solution 4

I value my product as a fraction of it's value for the client. My venture sells web apps so it's slightly different, but if a web app would streamline 75K worth of overhead out of an office's budget, I charge 25K for it.

If it's a one time sale you have the option to examine the client and what value it will deliver to them. If it's a publicly sold product, the options are very different.

The basic formula is to sell it for around 30% of what it's worth to clients/end users. If you can deliver better quality than the next company, pricing in step with them is a big mistake because you can make more and take a better market share by promoting the features that justify the cost.

Solution 5

Magsto, my bet is that this question will be closed pretty quickly as being "not programming related."

However, I will tell you that your question is quite a bit more complex than can be answered here. There are lots of factors including time in market, market size, ROI you can offer, competitive advantages or disadvantages, the structure of payments (credit card, purchase order, cash), and even time of year. I only have experience here because I run my own company.

Do you really want to ask programmers this question? I think not...

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Comments

[Fire Crow]

I'm rolling on the ground laughing and it's the first time this economic theory stuff has made any sense.

[Carra]

Was going to propose Joels thread, you beat me :)

[Frank Crook]

So you based your price on your supply, ignored demand, and lost the consumer surplus as a result (and you couldn't keep this up, since you aren't doing it now). If you wouldn't let an economist lacking programming knowledge write software, don't let programmers lacking economic knowledge sell it.

[hughdbrown]

Everyone is long something and short cash, so everyone is a seller, and many of us price our talents and time without the benefit of an economist to tell us how to do it right. Somehow, though, it all works out.