the ‘bee log

One of the things that’s been at the forefront of my mind lately is how to price software that’s being delivered in an on-demand, service oriented world.

In my research I’ve uncovered what seems to be a pretty common rule: take the cost of a perpetual user license for your software and divide by 16 to 18. So if you’re charging $500 for a perpetual, on-site user license, the user/month charge would be between $27 and $31 dollars. Here’s an example of this model in the wild at VersionOne…

That’s a tidy little formula for using conventional wisdom to develop your a SaaS pricing strategy, but what about hosting? I’d say that if you have fairly minimal storage and bandwidth requirements, then build it into your price-per-user. That the strategy VersionOne chose for their on-demand edition. In our case we have a HUGE storage requirement and a HUGE bandwidth requirement, so we’ve elected to separate the user/month license fee from the infrastructure fee.

Admittedly this is a pretty simple rule, “The Rule of Divide by 17,” but it’s something to consider if you have a product you’re moving to the on-demand world.

I’d like to do a little series on this topic. Fire off an email or post a comment if there’s something in particular you’d like me to cover, and I’ll do my best to help. Next up…

• Conventional Resources for Price-Setting
• Pay-Per-Feature and Future Pricing Models