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My question concerns pricing and I hope someone here will offer us the benefit of their experience. A friend is moving from avid autodidactic tinkerer to professional web app developer this week (knock wood). His first project is a calculator to help engineers compare energy and emissions savings of various motors, allowing the results to be emailed from the app or a chart to be generated.

My frustratingly fruitless research indicates that apps like that start at $20K. He's nervous about what to request for his first app and wants to open negotiations at $10K or less. Your thoughts? What do apps like this typically cost companies when outsourced? If it matters, my friend is in the UK.

Thanks, Mary Kroll

Update/Elaboration: The developer had a meeting today and the interested firm (which makes fan motors, is my understanding) wants to move forward and are assembling specs to that end. They actually wants to offer the app as a product/service for their clients, with future e-commerce integration. That strikes me as something more valuable (meaning priced higher) than an app just for their engineers to use in-house. Any further thoughts?

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This seems very domain specific... I haven't the first clue what type of motors you are talking about. I'm not sure if you'll be able to get many specific answers here. You might want to rephrase your question to be more about advice on where to look for this type of data. – Ape-inago Apr 11 '11 at 14:58
The firm makes fan motors, is my understanding. (I didn't know it was necessary to detail that.) The developer had a meeting today and the firm wants to move forward and are assembling specs to that end. They actually wants to offer the app as a product/service for their clients, with future e-commerce integration. That strikes me as something more valuable (meaning priced higher) than an app just for their engineers to use in-house. – user9306 Apr 13 '11 at 1:23

2 Answers

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Most entrepreneurs are nervous asking market value for their product. Almost every entrepreneur would do better charging more than they are charging.

In this particular business, if you're correct that similar products sell for $20,000, that's probably because there's a fairly limited audience for this kind of thing, and it's likely to be the kind of business where you have to distribute the costs among a small number of potential customers... this is probably not the kind of thing every household buys.

The biggest problem is not setting a price -- it's finding customers. If you are finding customers that are excited about the product and are used to paying $20,000, you should certainly charge $20,000. If you're not finding customers at all, lowering the price isn't going to help. If your early customers prove to be very cost-sensitive or demand lower prices, you can always lower the price. But before that happens, I would hesitate to advertise a low price, because it (a) sends a signal that the product may be inferior and (b) can be very hard to raise later.

For more on pricing software, see

  1. Camels and Rubber Duckies - disclaimer, I wrote that
  2. Don't just roll the dice - covers very much the same material, by Neil Davidson, founder of Red Gate
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Thanks for the links. I had read Camels and have downloaded Dice. It's not inaccurate to say it's a limited audience, definitely specialized. The developer had a meeting today and the firm (which makes fan motors, is my understanding) wants to move forward and are assembling specs to that end. They actually wants to offer the app as a product/service for their clients, with future e-commerce integration. That strikes me as something more valuable (meaning priced higher) than an app just for their engineers to use in-house. Any further thoughts? – user9306 Apr 13 '11 at 1:26
Definitely open another question on that; you'll get better answers than if we continue to banter in the comments. – Joel Spolsky♦ Apr 13 '11 at 14:48
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Obviously a low price makes selling easier. But before thinking numbers you might consider the various ways of selling software:

  1. Sell it with an expiring license which has to be renewed
  2. Sell with limits (quota, like maximum amount of users)
  3. Sell it as a service (SaaS) with monthly bills
  4. Consider selling it with an unlimited license

Obviously #4 should cover your entire costs and include sufficient profit. This leads to a potentially (too) high price and/or small return. In the other variations you can think more mid or long term. This is also more client friendly but you have a risk that they stop using your software. In cases #1-#3 be careful with uploading it to their webspace. Consider hosting it yourself to protect your intellectual property (sourcecode).

Related things to consider to justify a lower price:

  1. Is your application general enough to sell to several clients? (Make sure not to sell a full exclusive license, reserve some or all rights).
  2. Can you split up your package in several optional features? (Price them individually and let your customer decide what to include or not)
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