I started a discussion on StackOverflow earlier this week about one of my work p
ID: 651901 • Letter: I
Question
I started a discussion on StackOverflow earlier this week about one of my work project and how to lead it correctly.
But it seems that this stack is a more appropriate place to ask those sort of questions, so here is my last question about my project:
How do you value your work? / How do you rate it in a financial way?
I'm working on a quite cool project with two other friends and people that we know ask us for an earlier access and how many it would cost per month for us to access it.
Unfortunately, I was not able to answer this simple question due to the fact that I'm not agree with my friends on this specific topic.
For me a bill of 80$/month/contract seems to be reasonable and appropriate for our targeted market (Institutions and Corporations) but my partner would rather count a charge of 500$/month/contract.
Our project is an asset manager in SAAS mode, and I don't really think that our potential clients would be ready to pay more than 90$/month/contract even if they have a lot of money due to their situation.
So, I would really like to have some opinions and advices on this kind of question.
PS: If my post is not on the appropriate stack, feel free to tell me. PS2: I'm quite sorry if I'm not totally crystal clear, I'm not a native english, if you do not understand something, as above, feel free to notice me and I'll rephrase.
Explanation / Answer
You could also price the product based on the term it will be used. Charge $250/mo for single months, but charge closer to $80/mo if they sign up for a multi-year contract (with cancellation fee)
Or, depending on the nature of your product, offer service in tiers; $80 for the 'basic' tier and closer to $250 for high-end tiers.
Another thing I would consider doing is approaching this formulaically (this is grossly simplified); What will it cost to continue running, what did you invest, what do you want to profit, how much will it be in an ongoing cost basis, what would expansion cost (e.g. if you have to upgrade to a new office) and what sort of emergency fund do you need. With all that in mind, have your money man crunch those numbers and find out what you'll need to charge to meet those expectations.E.g. "In 6 months we want to have enough money saved to cover $XXXX in case of emergency."
With those numbers, try to assess interested clients. If you have only 3 or 4 potential clients, they may need to be charged more. But if you have dozens of companies that may be interested, you can charge less. Assume that only a small percentage of the potential clients bite, and divide the costs you calculated by how much you believe you'll need, and you'll have a baseline. Add a small margin (10-20%) to that and you'll have your profitable price-point. If you think it'll cost $3000/mo to operate developing this software, and you think you'll get 12 clients minimum then you need at least $250/mo. If you have $5000 in the company pot available, you can likely lower your price for the first year and operate at a loss if you felt more customers in the long run would be better.
Also consider that many entrepreneurs fail because they get 'my baby' syndrome. They inflate the value of their product because they believe it is worth more than its value. On the other hand, it may be under-valued; "I know X Y and Z cost us nothing - so we shouldn't charge for them" when in fact they may be very valuable. So, at least in the beginning plan the pricing to the product on a "we will need $X to live off this product"; once you have that baseline down and you see the customer reaction, you can begin to gauge how much you should raise/lower the price to new/renewing customers.
And as usual, check to see if you have competitors and find out how they make profit. More importantly, check to see who FAILED and try to pinpoint why they may not have succeeded. "Oh, all the successful companies have an additional support contracts available, and all of the failures didn't have adequate support at all."