http://ayende.comAyende @ RahienCopyright (C) Ayende Rahien 2004 - 2021 (c) 202660That Spolsky article is one of the reasons you hear his name all the time. I'm hardly a fan, but that article is the dog's. http://ayende.com/4411/pricing-software#comment20http://ayende.com/4411/pricing-software#comment20Wed, 10 Mar 2010 18:08:33 GMTOf course there's always the question of how many people are in the target market for product X. Sometimes it won't make sense to develop a product since all the price/quantity points that generate a profit have a quantity that is greater than the number of potential users in the target market. http://ayende.com/4411/pricing-software#comment19http://ayende.com/4411/pricing-software#comment19Wed, 03 Mar 2010 19:24:31 GMTNo one mentioned Joel Spolsky because he's an idiot. He needs to get off his high horse. Same with Jeff Atwood. Bloody glorified writer, amateur programmer. Tired of hearing those 2 names. http://ayende.com/4411/pricing-software#comment18http://ayende.com/4411/pricing-software#comment18Tue, 02 Mar 2010 05:14:35 GMTI'm surprised no-one has mentioned Joel Spolsky's article on this here: [www.joelonsoftware.com/.../...ndRubberDuckies.html](http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html) http://ayende.com/4411/pricing-software#comment17http://ayende.com/4411/pricing-software#comment17Mon, 01 Mar 2010 20:18:05 GMTI don't think I'd agree with the the price's impact on perception of quality in software. In consumer goods, absolutely, but I think that has more to do with brand recognition than price. People will be willing to pay more for a recognized brand than a cheaper one they probably haven't heard much about. For instance when I started doing graphical arts as a hobby I went out to buy a professional graphics package. *The* package was Adobe Photoshop, which at the time was around $360. Then I came across Paint Shop Pro: $75. I checked the features and it had ticks in all the boxes I was looking for. It turned out to be an exceptional product. Maybe it doesn't do 100% of what you can do with Photoshop, but you don't need extra books to figure it out either. Software's also easy to demo, so regardless of price I don't think anyone would say "that's too cheap, it must be crap" without even bothering to download a demo. As for support goes: I learned when doing a stint on the MSDN forums that while many people will actively go out on the web and search for the information you need, many simply don't bother and post the same questions that have been asked and answered repeatedly. But these are a minor distraction, a 1 liner with a hyperlink or a "please RTFM." Still, I don't believe support is a 100% drain on profits. Any piece of software can benefit from being improved, potentially generating more positive reviews and more sales. In responding to legitimate support queries it becomes an investment into improving the product. (A new bug that can be fixed, a feature that can be improved, or topic to write an article about.) http://ayende.com/4411/pricing-software#comment16http://ayende.com/4411/pricing-software#comment16Sun, 28 Feb 2010 02:52:14 GMTThe price also impacts people's expectations for support. For a $2,000 product you expect to get some free support. For a $10 product I'm not sure what the expectation is for free support, but it is definitely less and you could either sell separate support contracts or charge per incident with a $10 price. Do you think that allows you to reduce the price or do you think you just get irritated customers? http://ayende.com/4411/pricing-software#comment15http://ayende.com/4411/pricing-software#comment15Sat, 27 Feb 2010 17:57:13 GMTI'm not even sure If i should contribute to this post because I feel I'll just end up ruffling someones feathers or be accused of wanting things for free and devaluing something simply because I feel it isn't worth it's current priced based on what you get. But I want to comment on the support calls. If the documentation for the product is good, then you wont receive many support calls to begin with. If you are receiving support calls for the same questions over and over then your product fails at usability or your documentation is poor. I don't think that is the case at the moment. The readme supplied with L2SProf provides enough information to setup the profiler and use it. If you have enough market penetration that people blog about your software, a lot of questions could be answered via google search. Everyone who reads your articles, at some point has googled for the solution to a problem before even considering going to a partner, vendor or paid support. And have successfully found their answer. http://ayende.com/4411/pricing-software#comment14http://ayende.com/4411/pricing-software#comment14Sat, 27 Feb 2010 15:43:07 GMTStill too expensive for the home tinkerer. Wish you'd come out with that less-than-full-featured version! Also jealous and not bitter! http://ayende.com/4411/pricing-software#comment13http://ayende.com/4411/pricing-software#comment13Sat, 27 Feb 2010 14:52:09 GMT>Let us say that each question cost 100$ This is not my experience, answering properly a support question takes 5 mn to answer and 10 to 30 mn to modify the product embedded documentation (generally a tooltip with an image, but sometime a command must be added or modified) to avoid the question to be asked in the future. I apply relentlessly this approach and so far it has been successful for years. http://ayende.com/4411/pricing-software#comment12http://ayende.com/4411/pricing-software#comment12Sat, 27 Feb 2010 14:18:50 GMTSurely if a software product is good, of high quality and the licensing, documentation is right you can balance/lower the cost (and ultimately make more money). Obviously up-front investment costs more as the aforementioned things require work... I would expect the cost of supporting software of the manitute you supply would require less support due to quality :-) Obviously there are licensing options which don't add support and therefore the user accepts the risk. Does this mean you'll drop the price by $100 :-) I work in an organisation which would love access to your tools but as a government funded sector we cannot afford pen and paper, let alone $200 per head on profiling software. I am not bitter, just jealous. http://ayende.com/4411/pricing-software#comment11http://ayende.com/4411/pricing-software#comment11Sat, 27 Feb 2010 14:16:41 GMTHm, correction, someone used the coupon code in a lot of failed orders. I reset the failed orders, you can try now. http://ayende.com/4411/pricing-software#comment10http://ayende.com/4411/pricing-software#comment10Sat, 27 Feb 2010 11:58:50 GMTThat seems to be the case, yes. http://ayende.com/4411/pricing-software#comment9http://ayende.com/4411/pricing-software#comment9Sat, 27 Feb 2010 11:53:51 GMTAyende, I wanted to "participate" the experiment, but the coupon code seems to be expired...are 10 new users already in?! http://ayende.com/4411/pricing-software#comment8http://ayende.com/4411/pricing-software#comment8Sat, 27 Feb 2010 11:50:28 GMTDemis, That is why I am running the pricing experiment :-) http://ayende.com/4411/pricing-software#comment7http://ayende.com/4411/pricing-software#comment7Sat, 27 Feb 2010 11:11:52 GMT@Frans, You don't need to investigate too deeply to understand what are the other players in the market. Take databases as a good example, you can either price it free, or several grands. Pricing a DB at a 100$ per machine is going to get a lot of raised eyebrows. For example, I consider the profiler to be a dev productivity tool, so I am looked at things like R#, SQL Comparer, TestDriven, etc. That gave me an idea about the range of prices where it would be acceptable to do so. You are correct about quality & pricing tie in, though, and that is something else that is tied to the perception of quality. The problem with upgrades in software is that it doesn't really decay, so you really got to add new compelling features to move onward. http://ayende.com/4411/pricing-software#comment6http://ayende.com/4411/pricing-software#comment6Sat, 27 Feb 2010 11:10:43 GMTCool, well it looks like you've done your research and are well versed on the fundamentals of software pricing but I still think your making a big guess with your base price. I think what you'll find is that there is a bell curve on price and affordability and if you price at the 'sweet spot' you will get heavily skewed sales as you've just entered everyone's affordability range. i.e. Instead of the majority of people thinking 'it costs too much I'm not going to buy it', they'll be thinking 'the product is affordable and worth the cost'. My prediction based on a potential 'developer market' for product 100,000*: $1,000 => 10 = $10,000 $500 => 100 = $50,000 $250 => 1000 = $250,000 $150 => 5000 = $750,000 (The sweet spot in this case) $50 => 10000 = $500,000 So in my prediction I believe that $150 is the 'sweet spot' where you will maximize revenue/profits. Now the 'sweet spot' i.e. affordability will be different for each market i.e. 'personal developer licence' vs 'enterprise licence' which is why I believe you should structure your pricing accordingly to these markets to maximize revenue/profits. * Now the above just a complete guess on my part as well, round numbers used to illustrate concept. http://ayende.com/4411/pricing-software#comment5http://ayende.com/4411/pricing-software#comment5Sat, 27 Feb 2010 11:09:53 GMTOnly one point that has some relevant to the overall, well done, discussion on software pricing, we can't assume that a support call for a 10$ product is equivalent to the 1000$ product, we are looking at that everyday with some buggy paid softwares for the iphone, how many time i heard to "what do u want for something paid 1$". Try to consider also this point, mixing with reputational effecr due to price, and add also the reputational effevt due to the people who stands behind the product. To be honest, ayende, if u place your profilers at somethibg like 10$ i think many people will buy it, even if not tied professionally to let'say nh, with an higher price i will wait that my comapny will buy me a license! Just my consideration ayende! http://ayende.com/4411/pricing-software#comment4http://ayende.com/4411/pricing-software#comment4Sat, 27 Feb 2010 11:00:17 GMTWithout deep market research on price and what the perception is of your target audience when they see a price X or Y, it's impossible to say what the price should be. Your graphs look nice, but they just show what a list of numbers will look like graphically, they have little value for an ISV looking for a price for their product, as that's really hard to determine: you've to do research among your own target audience. It's a big topic, price elasticity and product pricing in general, so big so that it's really hard to come up with any advice in that area in a couple of posts, although it's good that you at least try so people get aware of the fact that there's even such a thing as price elasticity. Things you ignored (understandably as it's a big topic) are for example the perception of quality related to a price (A product costing 10$ can't be something very valuable, yet a product costing 1000$ better be good) and the continuation of the product in the long run. For example, if you have 200 customers after a year or so, is that customer base enough for continuation of the company and the product? They've purchased an initial version, but will they pay you again for a follow up product? If that's around 30% (random number) for example, you better try to increase your installed base. This is the typical approach japanese car makers took in the 70-ies when they flooded the market with high quality low priced products. http://ayende.com/4411/pricing-software#comment3http://ayende.com/4411/pricing-software#comment3Sat, 27 Feb 2010 10:37:57 GMTNathan, Yes, thanks for noticing! http://ayende.com/4411/pricing-software#comment2http://ayende.com/4411/pricing-software#comment2Sat, 27 Feb 2010 10:22:29 GMTI think you mean profit? Not revenue. http://ayende.com/4411/pricing-software#comment1http://ayende.com/4411/pricing-software#comment1Sat, 27 Feb 2010 10:06:56 GMT