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software "price" RRS feed

  • General discussion

  • this is an extract from the discussion we had in dome other forum, quite useful for future developers :


    Although it seems very logical to price one's software (or for that matter any product) on the basis of time effort spent on the particular software's production and testing, but don't be tempted by such a method.

    As economic theory says COST and PRICE are completely independent of each other.
    Reason is simple, say one prepares a software which took X months of time "effort" and the price was calculated on the basis of this. The price derived is Y $.

    Now consider these situations:

    Scene one: market has supplementary products which are priced at say Z $ on an average.Only way to earn maximum revenue is by keeping your product priced close to Z $ only (since it can be supplemented easily).
    Now, if Y < Z you make profit and if Y > Z you make loss. Its your problem to keep Y < Z, through better talented employees or whatever.
    Hence, to make most revenue (whether that results in loss or profit) your Z what market decides (independent of Y).

    Scene two: You have built a unique product and the market has no supplementary products, then you sell it at Z $ where Z>>Y. That is, Z is in no relation to Y.

    It is just the market dynamics and your product utility and uniqueness that prices it. The  price is in no relation to cost.

    Obviously if  product is specially made for single use only by some organization than it can be priced on the basis of effort taken. For mass productivity, effort has no consideration in pricing. If you built your software efficiently than you earn more than your competitors but at same market price!

    regards
    Sumit Dagar

    Wednesday, March 21, 2007 5:06 AM