Pricing of a feature/product

I don't know much about software pricing, but I think pricing it based on the time it takes you to create it is the wrong way to think about it. The pricing guide from Neil Davidson is quite useful http://www.neildavidson.com/dontjustrollthedice.html (although it doesn't really touch on the "price per use" model that you're suggesting).

I have just listened to a couple of podcasts from the Escape from Cubicle Nation after reading this AO-question. So far I have only listened to number 6 below, but I have included links to the whole series.

1. The Price is Right Interview Series: John Jantsch
2. The Price is Right Interview Series: Mark Silver
3. The Price is Right Interview Series: Ramit Sethi
4. The Price is Right Interview Series: Andrea J. Lee
5. The Price is Right Interview Series: Alexis Neely
6. The Price is Right Interview Series: Sherri Garrity

Their conclusion were that as a former employee you tend to look at how much money you used to make instead of the value of what you are creating.

I would suggest you start from another view:

• How are you going to market?
• How much are your customers prepared to pay?
• Will you have a free trial or a cheap introductory price?

Also read the book Don't just roll the dice as Joseph suggested.

In my opinion using your jobs opportunity cost to price your product will probably yield you a price that is not optimal. You could be under pricing or over pricing your product given what level you were at. I would suggest that you:

1. Scope the market you are entering and establish what your competitors are pricing at. This usually gives you a good indication of what may be a price that customers are willing to part with.

2. Run a trial or beta of your product at a pilot customer and use the experience to gather feedback as to what the client would most likely pay for the product if they were billed for it.

3. Calculate your fixed and variable costs for each deployment and see where you lie in a matrix as compared to your peers.

4. Does your product require after sales service? Is there an on going maintenance cost that the clients will have to pay? Adjust your margins throughout the entire billing life cycle.

Hope this helps a bit. Selling enterprise level products usually take a lot of time and it is good that you are factoring your time costs into the equation as well.

I concur with Joseph on the Neil Davidson book. Its a very good read which will add significant perspective to how you price your software.

I would like to add that basing your price on effort invested is not the best way to drive returns for your business.

At Creately.com - we had a similar question about pricing when we launched our online diagramming service. We had a rough idea of how much to price for our product based on market research, competitors, etc, but we wanted to find the price point at which we could maximise our revenue.

For a 2 month period - we ran a "Name your Price" Plan - with the minimum price set at $1/month for a premium subscription. On upgrading, the user was asked to name a fair price for the service they had already tried.

Besides the data we collected on price - we saw a very interesting pattern of usage. Users who had paid more for the service used it more extensive than those who had paid less than the average. We also found that the higher paying users came from particular industries and created certain types of diagrams more often. You can read more about the Pricing Experiment on our blog.

Along with a better understanding of the optimal price points, we learnt that there existed 2 distinct type of users in our system and how to price discriminate to achieve the optimal result.

Do your research, then experiment, learn and adapt quickly.

@All Agree with most of your points. The book by Neil Davidson doesn't touch much upon pay-per-use type. If I don't have a reference point (exact competitor), is it fine to price the product thinking how much time the end-user would save using my product ?, taking into account the value of his 1 hour ?

I would offer you one more interesting book to read in regards to pricing, namely "Predictably Irrational" by Dan Airely. While the book isn't about pricing in the strictest sense, it is (a) interesting, and (b) describes a lot of facets to human behaviour that relate to pricing. Such as the power of free, anchoring a price, and usage patterns (such as gym memberships).