We have a software product that increases productivity of engineers and allows them to build/prototype new products. It costs $25,000 to use it for 3 months. A big name company is interested. How do I price and sell this software to them?
For starters, I read this yesterday and strongly recommend it: Joel on Software: Camels and Rubber Duckies
Initially, I planned on charging $25,000 for a site license, but then I checked the customer and saw that they have many groups who could potentially use the software. I changed my plan to charge 1-5 seats at $25,000 for 3 months. It makes $100,000/year. The software is complex and charging $100,000 per year will only cover a portion of our operational costs.
There is another large company who does software with different functionality but similar category, they charge $10,000 - $20,000 a year per seat, which is not too different from my model. They make $100,000/year for 5 seats.
Since this will be a 5-seat license, when I present the price, I plan to further split this $25,000/5 seats * 3 months = $1,666 per person-month.
All of a sudden, the price of $100,000 which is mentioned in Joel's article as dearly gets very close to the range of cheap, when you look at it as per-seat/per-month.
Going further, for $1,666/per person-month to be a sensible price, I must show that I am saving the customer the engineering costs of at least $1,666/per man-month so that it is well justified.
Maybe as a simple hack, I should increase the number of seats? If I make seats 1-8, it makes: $25,000 / 8 seats * 3 months = $1,041 per man-month. The cost/benefit ratio for $1,041 is easier to justify.
To further improve the perception of cost, I could make the price $999. There you go, now I am presenting the price of $999/man-month, at a minimum 8 seats. In grand total it makes:
$999 * 8 * 12 = $95,904 per year, nearly the original of what I expect to charge a year.
Does this sound reasonable?