Pricing is probably one of the trickiest parts of tech business. After I built my first product, I just licked my finger, waved it in the air and set a price (Jack Sparrow style). It didn’t work, for that a many other reasons.
How do you set a price for a SASS, considering that bulk of the initial “cost” is development time? Content and service subscription pricing strategy will also be helpful.
They teach you this in university (I’m an International Business major).
There are various strategies, but generally, good pricing takes into account the costs that go into producing the product or providing the service, as well as other factors like the price of similar/competing goods/services, and how much operating capital you have (i.e. how long you can continue to operate until you break even and start to turn a profit)
Anyway, to cut a long story short. The pricing formulas we learn in Managerial Accounting are based on the Break Even Point = The point at which the Total Cost of production = Total Revenue from the product.
This is handy because you don’t know what price you want to charge yet, but if you know how much it has cost you / will cost you to produce the product / service, you automatically have a figure from which you can make a rough guess at how many units you would expect to buy / sell for a total of that amount. These are your break even units.
Once you have that, it’s simple division to produce a selling price.
Your total costs should consist of Fixed and Variable costs.
Fixed costs are costs that don’t change no matter how many units you produce e.g. Rent (of your office or work studio)
In your case, if there’s just one main push to develop the software initially, the initial development time can be a fixed cost calculated as (wage per hour x total number of development hours. Or whatever total amount was paid to the developers for that initial development.)
Also, if you plan on providing software updates, that is still a fixed cost as each update is delivered only one time, and it’s not every single time that a customer buys the software that a brand new update must be written and deployed.
Variable costs are costs that occur every time you produce a unit of your product or deliver an instance of your service. E.g, I’m an artist. Paper is a variable cost for me. Every time I draw somebody, I MUST use a sheet of paper, and that sheet of paper costs money.
TC (total cost ) = F (Fixed Cost) + Vx (where V - Variable Cost and x - the number of units of the product or instances of the service)
But TC = BE (where BE - Break Even Revenue)
And Revenue = Px (Where P - Price, and x - number of units)
Therefore F + Vx = Px
Therefore, P = (F+Vx) / x
Your price = P ( within reason. If P turns out to be much much higher than similar competing products, this is an indication that your production costs / costs of delivering the service are too high, OR the number of units/ instances that you project to break even with is unrealistically low. either way, do more research and make adjustments)
With all that being said, check out my (appropriately priced) product 
- Sugabelly Phone Cases
You went innnnn on that answer. Nice.
This is why radar is so useful. People willing to help others at great lengths.
Checking your first co, it appears to be a SaaS which I have a tiny bit of knowledge, so this perhaps is relevant as well:
Pricing is an art and not science. But you have to start somewhere…excellent article by Joel Spolsky http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html
Regularly review your pricing…You of course might not get it right from the beginning http://www.priceintelligently.stfi.re/blog/Why-You-should-Change-Your-saas-pricing-every-six-months?sf=jjjxk
For SaaS, a breakdown of your cost is critical…see example from Buffer https://open.bufferapp.com/transparent-pricing-buffer/
This is my award winning price engineering empirical solution even though my University professor thought I was nuts.
The first step is to estimate your Annual Market Potential based on what you have in stock and your advertising/promotions budget.
After estimating your annual market size, you can fix a price by considering your opex, capex source annual valuation and industry profit margin.
Below is how you estimate your market size;
Annual potential market Size = [Cr * (Mc) * (1 + Gr/100)] + [Ic * Cr * (0.7) * (Mc)]
The first component is the percentage of the growth market you can capture, while the second component is how many of the existing maket you can westle from competitors.
Where;
Cr = Challenge ratio - (The ratio of your advertising budget to the total advertising budget of all your competition)
Mc = Actual market size
Gr = market growth rate in percentage points
Ic = Infrastructure coefficient
Cc = Competition coefficient
NOTE: I used global customer retention factor of 30% in arriving at the 0.7. There are studies which state that 30% of the market are very resistant to change. Those are the people who only buy flat screen Tvs becaue they can’t find CRT according to Simon Sinek.
Here is a practical example which I used for www.quickairtime.com
Mc in this case is No. of Smartphone users in Nigerian = 12million
Lets assume the smart phone market annual growth rate is 5%
If quickairtime.com is spending NGN1million/yr of advertising, and the total amount spent advertising in the recharge card sector annually = NGn12billion, then Challenge ratio = 1million/12billion = 0.000083
Infrastructural coefficient: is the number of possible infrastructure channels offered versus the potential available infrastructural support.
Eg. Payment channels - mastercard, visa, verve, paypal, google wallet, bank transfer, gtpay
Delivery channels - website, mobile site, android app, blackberry10 app, blackberry 6/7 app, windows app, iphone app, ipad app etc
In all that is 15 delivery/payment Infrastructural channels. So for quickairtime.com I would use 0.93 becase it is available in all potential delivery channels but it has not got a bank transfer payment option.
hence
annual potential market size = (0.000083 * 1.05 * 12000000) + (0.930.0000830.7*12000000) = 1050 + 648 = 1698 users
The idea is to be empirical in approach.
This empirical approach does make some assumptions. Eg. That all advertising budget are spent in the same way because it assumes equal competition.
After estimating annual market size, you can fix a price by considering your opex, capex source annual valuation and industry profit margin.
Note that Capex source valuation is the money you have spent in building the app, treated as a loan based on the preferred term and interest rate.
*It works with every business I have tested it on.