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102 How Do I Price My Software? · DevQuestions with Tim Corey

• 0:00
  SPEAKER_00: Welcome to the Dev Questions Podcast with Tim Corey.
• 0:03
  SPEAKER_00: Join us each episode as we tackle the questions you are asking about a career in software development, understanding the industry, and new technology.
• 0:12
  SPEAKER_00: If you're just starting out or you want to grow stronger as a developer, this is the place to get your questions answered.
• 0:19
  SPEAKER_00: Now, here's your host, expert developer and online educator, Tim Corey.
• 0:25
  SPEAKER_02: How should I price my software?
• 0:27
  SPEAKER_02: What's a criteria I can work through that will help me identify what makes sense for both me and the customer?
• 0:36
  SPEAKER_02: This is a question I was asked on the suggestion site, and I thought it'd be a great one to dive into in today's episode of DevQutions.
• 0:44
  SPEAKER_02: Now, if you have your own question, go to suggestions.iamtimcorey.com and make sure you enter your suggestion or vote somebody else's suggestion up if it matches up with what you're looking for.
• 0:55
  SPEAKER_02: Now, pricing software is tricky.
• 0:58
  SPEAKER_02: It's not something that you can just throw a dart at the wall and come up with a great price.
• 1:04
  SPEAKER_02: Now, maybe it will work, maybe it won't work, but let's talk through the ideas of how you can make a better decision than just dart throwing.
• 1:13
  SPEAKER_02: So the first thing that I want you to do is probably one you're already thinking about doing, and that is compare yourself to the competition.
• 1:21
  SPEAKER_02: Whatever you're building, look for who else does this.
• 1:25
  SPEAKER_02: Is there someone that's close?
• 1:27
  SPEAKER_02: Are there people that are selling software today that are close to what I'm doing or that makes sense to compare to?
• 1:36
  SPEAKER_02: Figure out what they're charging and maybe try to see how big their user base is.
• 1:42
  SPEAKER_02: See if that pricing works.
• 1:44
  SPEAKER_02: See if what they're doing makes sense compared to what you're doing.
• 1:48
  SPEAKER_02: Now, you probably won't find a one-to-one comparison because there's a reason you built your software.
• 1:55
  SPEAKER_02: Maybe it does something different or better, or maybe there's just not anything out there that does exactly what you wanted to have done.
• 2:04
  SPEAKER_02: So it's not a direct comparison, and you should not stop here.
• 2:10
  SPEAKER_02: Don't think that because your competition prices your their software at$50, that by setting yours at 45, you're done.
• 2:19
  SPEAKER_02: That's not the right choice.
• 2:21
  SPEAKER_02: So just use this as one data point.
• 2:25
  SPEAKER_02: We'll keep coming back to this as we think through other questions, but I want you to start here and understand what the market is, maybe what the market can bear, but even that is tricky to really understand.
• 2:39
  SPEAKER_02: Now, next up, I want you to think through what problem does your software solve?
• 2:45
  SPEAKER_02: Now, you should know this already, because you shouldn't build software that doesn't solve a problem.
• 2:51
  SPEAKER_02: Now, maybe that software is a game.
• 2:53
  SPEAKER_02: Okay, well the problem is boredom.
• 2:55
  SPEAKER_02: So you want to do something different, cool, great.
• 2:58
  SPEAKER_02: But if you're building software that is, you know, for business or for users to use that that isn't just a game, then it probably should solve some type of problem.
• 3:09
  SPEAKER_02: What does it do that isn't being done already?
• 3:13
  SPEAKER_02: What is it, what's the value that it adds?
• 3:16
  SPEAKER_02: Because if you can identify what the value is that it adds to the customer, then you can start to identify what is that value worth?
• 3:26
  SPEAKER_02: For instance, maybe there's software that you write.
• 3:29
  SPEAKER_02: Here's a simple example software that backs up the user's computer.
• 3:33
  SPEAKER_02: Sure, there's lots out there.
• 3:35
  SPEAKER_02: We're not gonna talk about the competition here.
• 3:37
  SPEAKER_02: We're just saying, hey, what if you built backup software?
• 3:40
  SPEAKER_02: That was simple.
• 3:41
  SPEAKER_02: Well, what does the user do currently to back their computer up?
• 3:46
  SPEAKER_02: Maybe nothing, maybe it's a manual process.
• 3:49
  SPEAKER_02: Well, how much time are you saving them?
• 3:52
  SPEAKER_02: If you can tell the customer, I can save you 10 hours a week with my software, that's huge.
• 3:59
  SPEAKER_02: If you can say, I will save you one hour a month, that can be important too.
• 4:07
  SPEAKER_02: Because even one hour a month is a significant time savings.
• 4:11
  SPEAKER_02: So now you've identified what the value is that you bring to the customer.
• 4:17
  SPEAKER_02: If I can tell a customer I can save you an hour a month and their time is worth$20 an hour, well, that's gonna save them$240 a year.
• 4:30
  SPEAKER_02: So what can my software legitimately ask for?
• 4:34
  SPEAKER_02: I could even say$200,$250.
• 4:38
  SPEAKER_02: That can still be valuable because of the fact that you're gonna have it for multiple years.
• 4:42
  SPEAKER_02: Now, maybe if I said$99, it's gonna save you twice that the first year, that could be a good pitch.
• 4:51
  SPEAKER_02: So you've identified what the value is the customer that can start giving you more of those boundaries to think through that identify what that range might be.
• 5:02
  SPEAKER_02: Next up, what does your long-term support look like?
• 5:07
  SPEAKER_02: This is what I am very passionate about.
• 5:11
  SPEAKER_02: People too often think about the initial sale and don't think about the long-term costs.
• 5:18
  SPEAKER_02: And what happens is they make their lives miserable.
• 5:22
  SPEAKER_02: They regret selling something because the fact that now, if you sell it at a one-time cost and you go, great, I'm making money, but then two years from now, you are still supporting that software and you're still fixing bugs that people are complaining about, and you're still required to keep working on that in order to support it.
• 5:46
  SPEAKER_02: That's not really a sustainable model because you have a long span of work you have to do on something where you don't get paid.
• 5:55
  SPEAKER_02: And yes, you may say, well, but I got so much money up front.
• 5:59
  SPEAKER_02: Unless you're budgeting that out and saying, okay, if it's$50 and I have to support this for two years after purchase, well, then that really means that you're making, what about$2 a month?
• 6:11
  SPEAKER_02: And is that valuable enough?
• 6:13
  SPEAKER_02: Because you start doing a division here and you say, okay,$25 a year, two years is$50.
• 6:19
  SPEAKER_02: So therefore,$2 a month, that's all I'm making.
• 6:23
  SPEAKER_02: And if that's not worth it to you, then you shouldn't be charging that.
• 6:27
  SPEAKER_02: You should be charging more.
• 6:28
  SPEAKER_02: And you might say, well, Tim, but I don't think anyone will buy it.
• 6:33
  SPEAKER_02: Well, that's okay.
• 6:35
  SPEAKER_02: Because at this point, you're trying to figure out what makes financial sense for you.
• 6:40
  SPEAKER_02: Then you can figure out, hey, if no one buys it, then it's just not worth it.
• 6:46
  SPEAKER_02: And either you could reduce that support, or you can say, I just can't afford to sell it.
• 6:53
  SPEAKER_02: Too many people think that the only criteria is again, what the customer will pay, or what the competition is doing.
• 7:04
  SPEAKER_02: And neither of those is really the right criteria.
• 7:07
  SPEAKER_02: You have to think about what makes sense for you as the owner.
• 7:12
  SPEAKER_02: If it doesn't make sense for you to sell it, then you shouldn't sell it.
• 7:16
  SPEAKER_02: Or you should put the right price tag on it, even if it blows away the competition.
• 7:22
  SPEAKER_02: Because by doing so, you're saying, this is what my time is worth.
• 7:28
  SPEAKER_02: If it's not worth it to you, that's okay.
• 7:31
  SPEAKER_02: But we have to have some sort of equitable trade here.
• 7:36
  SPEAKER_02: I wouldn't start selling my vehicles for$10 a piece because somebody else is selling their vehicle for$9 a piece.
• 7:44
  SPEAKER_02: I wouldn't do that because that wouldn't make sense for me.
• 7:49
  SPEAKER_02: It's worth more than that.
• 7:50
  SPEAKER_02: And I would lose money.
• 7:52
  SPEAKER_02: Well, in the same way, if you're spending all this time supporting it and you're not getting paid, you're losing money.
• 8:00
  SPEAKER_02: So think that through.
• 8:02
  SPEAKER_02: Now, we want to think about through your other costs as well.
• 8:06
  SPEAKER_02: Because it's not just the idea of your time, maybe there's other things as well.
• 8:11
  SPEAKER_02: For instance, when you sell something, unless you are doing a cash transaction where they hand you cash and you hand them a product, you probably have to involve credit cards or other payment systems.
• 8:24
  SPEAKER_02: So what are those fees?
• 8:26
  SPEAKER_02: Because those fees come out of your profits.
• 8:31
  SPEAKER_02: So you have to think through if I'm charging$10, but my credit card processor is pay is charging me$1 for every$10 sale.
• 8:39
  SPEAKER_02: Well, now I'm only making$9.
• 8:42
  SPEAKER_02: If I need to make$10, I need to charge$12.
• 8:46
  SPEAKER_02: So you start thinking that through.
• 8:48
  SPEAKER_02: Hosting costs.
• 8:49
  SPEAKER_02: If you're hosting this on a server, what are the costs for hosting that?
• 8:54
  SPEAKER_02: Are those costs going to increase as you get more popular?
• 8:58
  SPEAKER_02: You need to build those things into your pricing structure.
• 9:02
  SPEAKER_02: If you're putting it on a store, what does the store take?
• 9:05
  SPEAKER_02: Because those costs have to come out before you get what you actually make.
• 9:10
  SPEAKER_02: So if a store takes 30% and the payment processor takes more, well, then you start coming down to okay, I'm making$7,$6,$5 per sale.
• 9:21
  SPEAKER_02: Is that enough?
• 9:22
  SPEAKER_02: And if it's not enough, don't do it.
• 9:25
  SPEAKER_02: I tried an experiment a while ago where I put a course on Udemy because everyone told me that Udemy is the place to go.
• 9:35
  SPEAKER_02: Put your courses on Udemy.
• 9:37
  SPEAKER_02: Sure, you won't get as much money per sale, but you'll get more sales.
• 9:42
  SPEAKER_02: And I was kind of skeptical.
• 9:45
  SPEAKER_02: But what I did was I wanted to know for sure.
• 9:48
  SPEAKER_02: And so I put one course on Udemy and I made a ton of sales.
• 9:54
  SPEAKER_02: And I was on the front page as one of the top-selling courses and one of the best rated courses.
• 10:01
  SPEAKER_02: People loved the course and they wanted more.
• 10:04
  SPEAKER_02: The problem, I didn't make any money.
• 10:07
  SPEAKER_02: In fact, when I started doing the math on it, I actually lost about$17,000.
• 10:13
  SPEAKER_02: Now, there's probably more losses there, and I haven't totally figured them out yet, but that was the very beginning how much I lost.
• 10:20
  SPEAKER_02: And you may say, well, Tim, how can you lose money when you are selling something that you don't have to do any more with?
• 10:28
  SPEAKER_02: Well, I kind of did.
• 10:29
  SPEAKER_02: I had support that came with every customer.
• 10:32
  SPEAKER_02: Every customer had a problem.
• 10:33
  SPEAKER_02: I had to work with, I had to help.
• 10:36
  SPEAKER_02: And so there was an influx of customers, but not the equivalent amount of money or enough money to help me support and pay for my employees and myself to do the work of supporting those customers.
• 10:52
  SPEAKER_02: So I ended the experiment on Udemy and brought it back to my site.
• 10:56
  SPEAKER_02: Because even though it sold a lot more when that course was$9 versus what it is today, which is$97, even though it sold a lot more, I actually made less money.
• 11:10
  SPEAKER_02: And because I made less money and had more support to do, it actually made it harder to continue doing work because it sucked my finances out instead of bringing those finances up and supporting it properly.
• 11:24
  SPEAKER_02: So when I did a math on what do I need out of this, it was more than what Udemy could provide.
• 11:32
  SPEAKER_02: And so I said, even though I'm selling more, I need to sell less at a better rate of return so that I can continue to make new courses and continue to create free content.
• 11:46
  SPEAKER_02: So that's the kind of process you need to think through.
• 11:50
  SPEAKER_02: Even if you're doing tons of sales, it may not be worth it to make that money.
• 11:56
  SPEAKER_02: It may be worth it to have all those sales.
• 12:00
  SPEAKER_02: It may be worth it to have less sales and a better profit ability.
• 12:07
  SPEAKER_02: So that's the thing to think through is what are your costs?
• 12:11
  SPEAKER_02: How much they drag down the overall amount you get?
• 12:15
  SPEAKER_02: And is that resulting amount going to be okay long term, not just short term?
• 12:23
  SPEAKER_02: Now, another thing to think through when pricing software is is it a one-time purchase?
• 12:30
  SPEAKER_02: Is it a one-time purchase with a support agreement that you pay for separately, or is it a subscription?
• 12:38
  SPEAKER_02: Now, no one loves subscriptions because of the fact that you continue to pay for something.
• 12:43
  SPEAKER_02: Everyone would love to have a one-time payment that pays for everything.
• 12:47
  SPEAKER_02: The problem is that that doesn't, again, support you long term.
• 12:52
  SPEAKER_02: So if you are supporting something long term, then you have to have income long term.
• 12:59
  SPEAKER_02: This is why software companies will usually sell you their software either as a subscription or you buy the software, but then any updates, you have to have a current uh support agreement with them, which is a separate payment.
• 13:15
  SPEAKER_02: Because that support agreement and that separate payment every year will allow them to keep making software.
• 13:22
  SPEAKER_02: Buying software once, it doesn't matter how much how expensive it is, isn't a great recipe for the solvency of the company if they have to keep making new versions with for that one-time payment.
• 13:36
  SPEAKER_02: So that's where the long-term income has to come in.
• 13:40
  SPEAKER_02: And that's what you need to think through.
• 13:42
  SPEAKER_02: If I sell this software, are they going to get lifetime updates?
• 13:47
  SPEAKER_02: And are they going to expect lifetime updates?
• 13:50
  SPEAKER_02: Because if they are, then you need to think through is there a better way to sell this than just a one-time payment?
• 13:57
  SPEAKER_02: So when I sell, when I offer my all access pass, I offer it all the time at an annual pass and then occasionally at the monthly pass level.
• 14:07
  SPEAKER_02: There's a reason why I don't offer a one-time buy everything for life option.
• 14:14
  SPEAKER_02: You can buy all my courses at once, and you can buy them all at a certain flat rate.
• 14:21
  SPEAKER_02: But then when new courses come out, you'd have to buy those courses as well.
• 14:25
  SPEAKER_02: I don't offer a lifetime access to everything I do because of the fact that would make for great income now, but my staff has to get paid tomorrow and next year and the year after that.
• 14:39
  SPEAKER_02: And so do I.
• 14:41
  SPEAKER_02: So by doing a subscription, I can keep the price relatively low and yet offer you the ability to have all of my content repeatedly over the years and continue to change and grow, and that catalog improves all the time, and you get for that same rate.
• 15:00
  SPEAKER_02: Because you are continuing to pay for it.
• 15:03
  SPEAKER_02: And because you continue to pay for it, my employees continue to get paychecks.
• 15:09
  SPEAKER_02: So I've thought through what makes sense for us financially.
• 15:13
  SPEAKER_02: And you know what?
• 15:15
  SPEAKER_02: I would love to just give everything away for free, but that doesn't make sense.
• 15:18
  SPEAKER_02: It also doesn't make sense to just give things for cheap in a way that does not allow for the long-term support of my company.
• 15:28
  SPEAKER_02: So when you're thinking through the idea of selling your code, think through what's my long-term cost, what's the overall cost I'm gonna get right up front?
• 15:41
  SPEAKER_02: What are the costs associated with hosting the product or maintaining the product, those kind of things, and think through those costs to say, should I add more to it?
• 15:52
  SPEAKER_02: And the the end here is to think through all of these things.
• 15:56
  SPEAKER_02: What's your competition doing, what problems you're solving, and how much is that worth, what your costs are, both in terms of maintenance and also in terms of hosting and other things, what the um the other costs are, but also what the options are for you when it comes to subscription versus one-time payment versus one-time payment and support.
• 16:20
  SPEAKER_02: Think through all of these things and then sit down and evaluate what that end number should be.
• 16:27
  SPEAKER_02: And you may be surprised what that end number is, because it may be much larger than your competition.
• 16:34
  SPEAKER_02: So, again, going back to that Udemy example, Udemy sells courses for$9.
• 16:40
  SPEAKER_02: I sell courses for$97.
• 16:44
  SPEAKER_02: You would think that I wouldn't have any sales.
• 16:47
  SPEAKER_02: And the opposite is true.
• 16:48
  SPEAKER_02: I have tons of sales, and I have people every day that say that was extremely valuable.
• 16:55
  SPEAKER_02: And in fact, that changed my life.
• 16:57
  SPEAKER_02: Because what I did is I looked at my customer and said, How can I give you more value than what you're paying?
• 17:08
  SPEAKER_02: Because I can give you more value than what you can even get in a college education.
• 17:13
  SPEAKER_02: So if I can do that, then what's that worth?
• 17:17
  SPEAKER_02: If you're paying for a college education, the low end of the averages is$92,000 in the United States for a four-year degree.
• 17:25
  SPEAKER_02: That'd be four books.
• 17:27
  SPEAKER_02: Books are another uh$4,000 for the four years.
• 17:31
  SPEAKER_02: Well, if I can give you something that is$1,000, yes, it's more than the$10,000,$20,$30,$40 on Udemy, but am I not giving you more value than it's gonna cost you in another way?
• 17:46
  SPEAKER_02: So I look at that and say, I'm giving you great value.
• 17:49
  SPEAKER_02: And yes, I'm not gonna compete with Udemy pricing.
• 17:53
  SPEAKER_02: Because even though it would seem illogical, the more expensive courses are actually valuable and are gonna give you more value than you pay for them.
• 18:05
  SPEAKER_02: So I've looked at that and said, this is my number.
• 18:08
  SPEAKER_02: And so you look at your software, you may come up with a number that says, this is more expensive than my competition.
• 18:15
  SPEAKER_02: My competition sells for$20 and I think it's worth$99.
• 18:20
  SPEAKER_02: And don't be afraid of that.
• 18:22
  SPEAKER_02: Look at that and say, it's okay.
• 18:25
  SPEAKER_02: It's gonna be that price, and not everyone's gonna choose my software.
• 18:29
  SPEAKER_02: But when you look at your software, if it provides better value for the customer, if it does what they need it to do, then they're gonna pay for it.
• 18:39
  SPEAKER_02: Not everyone, but a lot.
• 18:41
  SPEAKER_02: When I look at software, I don't look at what's the cheapest.
• 18:45
  SPEAKER_02: I look at what solves my problem the best.
• 18:48
  SPEAKER_02: Because that in the long run is gonna help me more than saving a few bucks up front.
• 18:55
  SPEAKER_02: So when you find that final value, make sure it's fair to you, make sure that it's going to pay you long term, make sure you can afford to do it, and that you can afford to thrive while doing it.
• 19:08
  SPEAKER_02: And then be okay with where that price is.
• 19:12
  SPEAKER_02: It might not be what you expect at first.
• 19:15
  SPEAKER_02: All right.
• 19:16
  SPEAKER_02: So be it, don't be afraid of the high price, don't be afraid of pricing higher than your competition.
• 19:22
  SPEAKER_02: Make sure you do the evaluation of all these things and then look at your price.
• 19:27
  SPEAKER_02: Hopefully that answers your question.
• 19:28
  SPEAKER_02: I hope that from this, you'll have a better outcome.
• 19:33
  SPEAKER_02: That's the important part.
• 19:34
  SPEAKER_02: It's not about the start of the process where you get the money.
• 19:38
  SPEAKER_02: It's about the outcome, whether or not it was a success.
• 19:41
  SPEAKER_02: And I hope you have a great success.
• 19:43
  SPEAKER_02: Now, again, if you have a question you'd like to see answered on DevQuestions, go to suggestions.iamtimcorey.com and leave that there.
• 19:50
  SPEAKER_02: Thanks for listening.
• 19:51
  SPEAKER_02: And as always, I am Tim Corey.
• 19:54
  SPEAKER_01: Thank you for joining us for this episode of Dev Questions.
• 19:57
  SPEAKER_01: Tim is committed to making it easier for you to become a developer.
• 20:00
  SPEAKER_01: If you would like to help make more content like this possible, please like, subscribe, rate, and share Dev Questions.
• 20:08
  SPEAKER_01: You can also send your questions to questions at IamTimcorey.com.
• 20:13
  SPEAKER_01: Until next time, remember, you are too smart and your time too valuable to waste it making all the mistakes Tim did.
• 20:20
  SPEAKER_01: When you're ready to learn to think and code like a professional developer, head over to imtimcore.com and enroll in a course.