A couple of weeks ago I asked how much we should charge for our software. There were some really good responses in the comments, in particular Andy Brice's link to the Joel on Software forums (which I'm now devotedly following). My takeaway was:
- You can probably charge more than you think.
- You should ask your existing customers.
The post also included a poll, which came in with an almost perfectly linear relationship between price and the number of votes; the lower the price, the more people voted for it.
Since that post, I've emailed our existing customers and crunched the numbers. The results were pretty convincing -- our price point was too high. When we released version 1.3 of our software, we'd bundled in our webserver option and pushed the price up from $199 to $399. Almost every customer we asked felt that that had been a mistake. For many of them, the webserver wasn't of interest, so bundling it in wasn't useful. And the new price took us out of their impulse-buy range. So we're going back to the old model - $199 for the core product, $199 for the webserver.
We announced this on Tuesday, and sales have already ticked up.
"IT consultant of perfect love making art" -- Alisander Dawson
Proving that there really is a point in having a proper PR department who think about these things, we only realised today that our choice of date for the announcement of the winner of our spreadsheet competition was not ideal -- our US customers (who make up a hefty fraction of the total) have something else on their minds, apparently.
Nonetheless, we decided it would be unfair on the entrants to delay the annoucement, so here we have it: the winner of the first round of the competition is Siamak Faridani, for his spreadsheet to estimate the electrostatic field around Micro Electro Mechanical Systems. Congratulations, Siamak!
Just a quick reminder to anyone who wants to enter the Resolver One Challenge -- the first round closes at midnight tonight, so there's only 9 hours left for you to submit your spreadsheet if you want to win the first round's $2,000 prize (and thus be entered for the overall $15,000 prize).
Deciding how much you should charge for a piece of computer software is really really difficult. Even testing a given answer is hard. You can vary the price and watch your sales, but that can only tell you so much -- how do you control for other factors? You can look at your competitors, but who's to say they've made the right decision (if all the other software companies jumped off a cliff, would you jump too)? You can look at economic models, but in general they're great for pricing goods made of atoms but terrible for goods made of information.
All you can do is get as much data as you can, churn the numbers, and try to work o ut an answer. You fiddle with the price and do discounts, and see what happens. You talk to your existing customers and ask them how much people who haven't bought yet should pay. Or you ask the hundreds of brilliant people who read your blog :-)
So: what do you think? How much should we charge for Resolver One? Let me know in the poll below. I've not given "zero" as a response, but if you can think of a viable free software business model for us then you can post it in the comments. (Raising VC and then selling at an inflated price to Sun doesn't count :-)
[UPDATE] poll has expired
[UPDATE] Hello to visitors from reddit; I've added a link to the product information above so that you can see what software I'm talking about.
[UPDATE] An excellent link in the comments from Andy Brice (whose blog looks well worth reading). My takeaway: Don't try to compete on price alone. You can charge more than you think, and the best way to find out how much is to ask people, in particular your existing customers.
It was also great fun rereading this Joel Spolsky gem.