software, pricingI have created a demo app for some executives who are interested in adopting my app for their company. I am a recent grad with a BA in CS and I’m unsure how I would price my services for my app. So far I’m thinking,
I would not like to sell my app
I will be maintaining the app myself.
So how should I go about pricing?
This is a very broad question - please feel free to ask me to clarify things! Any input is appreciated.
One way to price your app is to determine how much money the other company will make if they use your app. As long as they are still net profitable, as long as you are making them more money than they are spending and as long as you are making them more money than they could with a competitor’s app, then the pricing is largely irrelevant.
So let’s say you license your app to them for $20,000, but they end up making $40,000 in net profit. If your competition licenses their app for $10,000, but the company only profits $30,000, then you win.
So research how much they will profit by using your app, research the competition, then set your app licensing accordingly.
Another way depending on how you want to grow your company consider the following:
Given the scenario that you want to work approx. 120 hours a month and you want to make earn a “salary” of $20.000 for yourself and you start without any employees, you could consider calculating the following:
Income = Business costs (not sure how much that is, depends on taxes and costs like electricity) + Business profits (i.e. 10%, there are laws in certain country’s that you may not make more profits then a certain percentage) + your salary
Income should be :
x = $10.000 + $1000 + $20000 = $31000
Income = the amount of clients * your licence fee If you could handle 10 clients (service + administration etc) within the time you want to work (alone) then your licence price would be $31000 / 10 = $3100
The consideration to make is easy, because more clients mean more income, and more business costs (more employees to maintain you service).
note
Remember to consider how “long” (actually fast) you want to earn your investment back. You could add a parameter to your income. And in your mind you could consider something like; “whenever I reached 10 clients for a yearly contract” , then I want to have earned my investment back.
As far as I know it strongly depends on the revenue and profit numbers your app generates. There are rules of thumb for how much X of the revenue/profit one can sell their app.
More information
The Startup for the Rest of Us podcast covered selling an app in various episodes. E.g. in http://www.startupsfortherestofus.com/episodes/episode-160-advice-on-selling-a-startup-early-days-saas-optimization-and-more-listener-questions
davejal has paraphrased an “income projection”. State your assumptions, generate your income projection with formulas and run it with the variables you are concerned with. Remember to adjust your assumptions (write them down) if they change. I would run the projection with best case, worst case and most likely scenarios. Use the results to answer your question.
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