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Doug Nebeker ("Doug")
I have question about software pricing.
My partner and I are just finishing college in small country in Eastern Europe and we decided to start a software business.
We looked for a niche that looks like it needs problem solving and we found out that lawyers in our country have need for full software solution to manage their practice.
We are now few weeks from finishing our first version of software and we have few law practices interested and one practice that we already had few sales meetings with.
Thing is, they are ready to buy.
Their practice consists of three lawyers and two support staff. They are very busy and focused on one particular branch of practice and they need custom module for that. They are only using Microsoft Word and do everything by manually and waste huge amount of time doing things that way.
Our software is full solution for lawyers. Think something like goclio.com on US market.
We started our software as a saas but as we talked with lawyers we decided to offer local version of software because of their concerns about privacy.
In first meeting we quoted them price at $55 dollars a month per lawyer/staff with mandatory yearly contract for online version of software.
They want local version of software for one-time fixed price after what they fully own software. They also need few things custom made for their practice.
Problem is we have no idea what to charge them for unlimited licence. We have zero experience and we don't want to lose money by under-pricing or lose them by over-pricing.
They also mentioned that they can refer us to other practices that need same software.
I would appreciate if anyone can share some advice.
P.S. I apologize for bad grammar.
> They want local version of software for one-time fixed price
The local version must be expensive then. They're lawyers, after all, and can afford it. Think of what they charge their clients! Make the local app something that only supports X number of lawyers and price it accordingly. For one single lawyer for permanent local use, I'd be wanting around $50,000. This is lunch money for them (don't let them tell you otherwise or play poor), and it's a custom product specifically made for them and their industry. Promote that angle.
> after what they fully own software
No! They must NEVER own it, nor the rights to it. They're lawyers and will find a way to make you update it, support it, change it, whenever they wish. They most only ever own a license to USE it, not to OWN it. There is a legal difference.
> They also need few things custom made for their practice
Incorporate that into the initial cost. If and when they need further changes, you then also incorporate further customisation costs. They must NEVER pay once and get free updates later. They'd never work for you for free, so don't do it for them.
They want a "site license" -- any number of users, but at one location. This is typical with businesses.
To determine the price, you should determine your future customers' average number of users (such as, what is the average size of law firms in your country), and price it a little higher compared to the per-user price. Customers will want to pay what everyone else has paid for the same license, so that is why you should calculate it from the average.
For the custom work, this is only my opinion but I developed my product in a similar niche, and I always did their custom requests for free. I figured their features would probably be wanted by others, so it was improving my product. It also made them like me and my company much more. My first customers told others in their industry about my company, which led to more sales.
And please, always use a real lawyer to create your license agreements. Like someone else above has said, there is a big difference between "owning" and "licensing" software. If your contract is wrong, they might claim they own your software and they can now sell your product to others and compete with you.
IIRC The rule of thumb is that the one-time cost should be about the same as 36 months of monthly fee. You need to make it clear whether they are entitled to support and upgrades for that fee (probably not).
I recommend being a bit flexible with your first few customers. You can be less flexible once you have plenty of customers.
Saturday, October 26, 2013
I am in the U.S. so maybe the economics are different but I got my start working for a company that sold a product like you describe. This was about 20 years ago. Back then the price was about $350 per user.
Here are some of the practice management programs I know of that people could license permanently, I don't know if they ahve gone to saas now, but you might be able to look them up to get pricing ideas:
I think ProLaw is the priciest but it also does accounting.
Regarding the custom work -- I would be inclined to charge for that. What I do is set a price for the core software, then say customizations are $x per hour, but I'll give a fixed estimate once I know what they want so there are no surprises. If it is a feature that improves my software for the next client, I may give a discount -- up to 50%. I make sure they know I am giving them a discount and they are happy.
In a sense, they're paying me to improve my product, but just because I add a cool new feature doesn't guarantee I'll get more sales than I would have without it. Nor that I can charge more for the package because of it. It's something they want so they should pay for it. And they usually do, happily.
Also, psychologically, people value something they pay for more.
Regarding the post to charge $50,000 because they're lawyers -- again, it may be different in the US than where you are, but I would not assume that they can afford that or that they would spend that much even if they can. If they had 100+ lawyers, that would be different. But unless your product is very unique, that sounded too high to me.
BTW, the way I've been pricing my product so far is there are two parts to the pricing, licensing and customization. Licensing is per user with volume price breaks, and it is for use of the software I have already developed, as is. Customization is for what they want done to tweak it for their purposes. I have been doing this a long time so I have a good idea how much work will be involved for the average client. So I offer two options:
1) Lower licensing and a flat fee of a few thousand dollars to customize one version of each template in the package (mine software is for documents). OR
2) Higher per user licensing, but I will customize just what they want and give them an estimate for just that work. That appeals to smaller firms who don't need a lot of customization.
I also have an annual maintenance plan that is optional but gets them updates and technical support. People who are on it get a discount on future custom work requests. 90% of my clients take the maintenance plan.
Keep in mind when you do custom work that if it's not exactly what the next law firm will want, that you end up with multiple versions of your program. So when you go to update the software you may have to touch each client's copy separately. Because of that, I charge a base fee to cover opening the code, plus a percent of the licensing price for the maintenance plan.
Last thing I would say -- I agree with the post to be accommodating, but you don't want to establish a relationship where the client expects work for free. They should expect to pay for all customizations and support and then if you want to do them some favors for free along the way, it's a feel good surprise for them, vs. them expecting you to work for nothing and sucking the life out of you...
Good luck with your new business!
One thing that does jump out for me is the "and they can recommend us to others" thing.
It's *possible* someone might recommend to a friend but generally speaking, why would they help their competition? Why should they help you?
What's in it for them?
You can't pay rent with the fact that someone else might tell someone else who might want to buy your software.
It's right up there with "Work for cheaps and we might throw more work your way", Well of course they might, if you're cheap. Do you want to be cheap?
They're lawyers, screw them over as hard as you can, because that's exactly what they do to you.
Wednesday, October 30, 2013
I agree with Reluctantly Registered's opinion that "they might refer you to others" is not a great incentive.
They probably will if your product is good. And you probably will get more business from it. Eventually. But referrals usually take a LONG time to really start to build up and pay off.
People will mention you in passing if the subject comes up, but I think it's naive to assume they're going to go out of their way to try to find business for you.
I often have clients who try to sell me on doing free work for them say things like "This will benefit you 'cause you can sell it to others" or "Learn it to teach us and then you can teach others" -- but the reality is, if no one else has asked for what they're asking for, it's really NOT in high demand and you're going to be stuck with the tab.
Regarding the rest -- I actually think lawyers are THE BEST clients. In my experience, I have never once had a lawyer rip me off. They pay their bills, they seldom (if ever) return things or complain, and while they can be brusque, they're clear about what they want so it's easy to make them happy. (Of course I don't deal with the ones who try to get a lot for nothing from me anymore so that helps. :-) )
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