It has been a real struggle to come up with successful software pricing models. We’ve found some patterns and concepts that just conflict in real life, making balancing needs of clients with demands on developers very difficult.

We have a piece of software, which provides advanced automation for webmasters. Now, this software saves a webmaster anywhere from 30 minutes to 4 hours PER use. That is still time they can charge for in many cases, but they don’t have to do the grunt work, the software simply does it. It was never meant for startups – startups really don’t NEED this automation. It is a tight niche software – only works for webmasters who use two specific platforms. So the target market will never be that big.

So, we have two kinds of customers – those who ask us why it is so cheap, and are suspicious because it is, and those who keep asking us why it has to cost so much. It is priced at $395 for the full version, but we usually have discounts on that (big ones). The Light version is $99. Interestingly enough, most complaints AREN’T about the price of the full version. They are about the price of the LIGHT version! We’ve also had prospects email us and ask us whether we would sell them the Full version for less than the price of Lighter. We had to say no, because we simply cannot support it for that.

In many instances, you can increase revenues on software by making up for it in volume. With this one, we can’t do that, for two significant reasons:

• The market isn’t large enough. It is a tight niche market, one that is difficult to reach through marketing, and the customer base will never be that large. So there just aren’t enough prospective customers to get high volume.
• The support is fairly intensive. It ranges from conflicts with server settings, to user typos, to coder typos (hey, they happen), to Failure to Read the Manual. It averages about 1-2 hours per sale. With that kind of support need, we just CAN’T drop the price down and hope to make money by doing so.

So the next suggestion was to drop the price and offer it with NO support, and then charge for support. Hmmm. That’s fine, except you STILL have to support it when it is a typo in the manual or a bug in the code, or a server conflict, because those are things WE are responsible for fixing. But we never know until we get into it which it is (often it is a combination of things, our responsibility and client responsibility). So you can’t just say “no support”, you still have to support it. And since clients can’t draw the line, and we don’t know until we look which type of problem it is, there is no effective way to manage a paid support system and still get paid. Too complicated.

The last one was that we go to a subscription model. Ok, we are going in that direction, but it is, in some ways, counterproductive. In order to implement a subscription model, we need additional programming to track and activate and deactivate the software for paid or overdue accounts. That increases our development and maintenance costs. This means that people are not going to get this for what they want to pay for it – it will still cost them more per month than the cheap ones want to pay.

I don’t feel obligated to please everyone. Basically, I feel that this software is best for established webmasters, NOT for startups. That is who our pricing is for. If they develop it for themselves, they will find they are investing thousands of dollars into coding. We ask them for about a tenth what they’d spend, and they get it now, instead of also having to spend a year developing and testing it.

No one else is offering anything like it, because people who do develop software like it either keep it in house, or they burn out in the development process and do not want to have to support it. Most don’t even finish it if they start coding it, because it is much more difficult than it seems.

It is simple to look at a piece of software from the outside and say, “this should not be so expensive!”. And it is easy to make the developer the bad guy when something doesn’t work as expected for our particular use. But software development is HARD, and supporting it can completely eat up every single penny of profit. So when faced with constant complaints about cost, and a huge drain on resources from support, many companies drop support to nothing, and lower the cost of the software. Their reputation drops too – but people don’t complain quite so loudly because they didn’t lose as much. But that isn’t who we want to be.

I’ve considered just raising the price to $500 and letting it go. Let those who are ready for it pay for it, give them red carpet treatment, and thumb my nose at the rest. But I’m not sure that is the right course either.

Pricing models are often more complex than outsiders assume they are, and the pricing model chosen for a business has to be right for the complexity of factors in that business specific. It isn’t the only factor in success – it is an important one, but to work, has to be combined with other well balanced factors.

We’re continuing to work with the variables to reach that balance.

A friend of ours held a Thanksgiving dinner in town. Hordes of people from nearby towns praised the idea, said how much it was needed, and promised to be there. A handful of people showed up, and none of the people who vowed to be there were part of the group.

Another resident here held a free dinner. Again, people promised to be there, and about 20 actually showed. This from three local towns.

I’m not exactly criticizing those who said they’d be there and weren’t. We had a wedding on the day of the free dinner, and it took precedence. That is just life. So I’m really just trying to make a comment on the law of averages.

Out here in Wyoming, where you count things by the each, such numbers are easy to analyze. When sixty people promise to show, and three show up, you NOTICE. You might not notice it so much in a larger area where you don’t personally contact everybody, and where the absence of a few might not matter so much. I think that the tendency to promise to be there, and then to not show is pretty universal though, and affects a range of aspects of operating a business, especially where actually PAYING for something is concerned.

Three weeks ago we got three calls about our software. All three promised they’d be buying within the next 24 hours. One purchased three days later. One purchased just yesterday. Another has yet to do so. Statistically, this is actually way better than average.

Early on in business, when we are just starting out, we get into conversations with people, and when someone promises to call, we get all excited, figuring we all but have our first customer. Then weeks pass and they never call. We quickly learn that more people SAY they will, than actually do.

The tendency in people is to express interest, even if they are not interested, to avoid hurting feelings. They will also promise to call, then promptly forget, say they’ll be somewhere, then look at their calendar and realize they have a conflict, or just plain not feel like going when it comes down to the date.

It is important that business owners understand that tendency, and not count the interest or bank on sales until they are actually made. It is also important that you adjust what people SAY when you are making projections, or analyzing poll or survey data – another place where people tend to exaggerate interest or commitment.

I don’t think there are any simple rules for doing so either, because it can depend on many factors. But in general, you need to water things down by at least 90%, because we find when we get 10% of the number who claim an interest to actually show up, or 10% of the people who say they will purchase to actually make the purchase, that we are doing fairly well. It can be much lower than that though, with some promotions.

When they say they’ll be there, don’t count on it. Take it with a grain of salt. Believe in people, but understand that what they say, and what they do, won’t always be the same, and it won’t always be because they are unreliable or untrustworthy. It is just how life is.

Many people are always looking for a cheaper deal, or for a “better” person than they just hired. Improvement is a good thing, as is finding good value, but hopping too fast from one service provider to another is counterproductive.

Case Study: A client was offered a 1 year performance guarantee on some services we offered. He bailed at 10 months – during this time, he provided very little in the way of help to allow us to effectively do the job. He then abandoned his site for a year, then decided he wanted it to work for him again. He hired an in-house marketing pro. This person was inexperienced with the site structure, but was learning fast, and also had to learn the business needs and foundations well enough to promote it successfully. One week into the job, the site owner decided he was not seeing results fast enough, and fired the pro. He hired another, who jumped in with enthusiasm. Again, she had to learn how to do many of the tasks, and had to learn his business well enough to promote it well. Two weeks later, he fired her, and hired a third person because he felt the second one was not productive enough.

This business owner is shooting himself in the foot. He is not allowing anyone enough time to learn his business well enough to do the job he wants them to do, and is paying for the same unproductive time, over and over. With this kind of services, there is almost always some unproductive time in the beginning, because you have to lay groundwork. And every time you start over, the new person has to come in and re-lay that groundwork, because they can’t just pick up where the last one left off – they have to orient themselves to the job.

Another client had four websites when we came on the job, all of their previous websites were ineffective because they were never finished. They had us build another, which again, they never did the legwork on to get finished (every client has to cooperate to a certain extent, or a webmaster CANNOT do their job, and this client refused to cooperate with their part of things).  Two years later they hired yet another firm to build yet another site – we suspect this one will never be finished either.

Impatience, lack of understanding, or refusal to provide needed input can stop a business from marketing effectively online. If you spend all of your time starting over, then all of your resources are going into foundations, and you never end up with any kind of results. Results come after you have spend a LOT of time with structure on TOP of the foundation. They don’t come from the time you spend laying that foundation, and the foundation HAS to be laid. Otherwise nothing is ever going to come of it.

If you hire a pro, at least give them a chance to get past that spot, and then provide your part of the job. You won’t see results otherwise, and will waste your resources in endless searches for a quick fix where there is none.

For new business owners, the first experiences with delinquent accounts may be distressing. Especially when it comes time to take action. Our company has instituted a series of policies, mostly implemented due to need, to address the situation. I am not longer as uncomfortable with handling this kind of situation, but I don’t think I’ll ever be completely easy with it.

• It is not rude to create a policy of enforcement for delinquent accounts.
• It is not unreasonable to require payment in advance (with reasonable assurances of performance on your part, such as satisfaction guarantees, refund policies, etc).
• It is not mean to suspend a service when payment is not made.
• It is not unfriendly to attempt to collect on a bounced check or to refuse further transactions from a customer who filed a chargeback on delivered goods.

Many of our company services operate on policies regarding website hosting services. We have policies that are well within the industry norms – in fact, they are fairly lenient compared with many hosting companies. Invoices are sent 15 days prior to the due date, reminders are sent, and if the account is 10 days late, it is suspended. Suspension does not delete the account – nothing is permanently lost. But it does make the site inaccessible by the public. Most companies will terminate (permanently delete) an account that is in excess of 30 days late. We do not. We keep it on the server for 6 months, then back it up and terminate the account.

We do this in an automated system – this actually takes some of the pressure off us. The system just automatically handles many things for us, it is “company policy”, and it just happens automatically, impartially, and completely predictably. We have clients for whom we will grant exceptions. We also have clients that we will not go out of our way for – these are clients who have already abused our good nature, or used up their chances.

It can be difficult at first to enforce policies like that. It can be shattering the first time you have to decide to send a bill to collections. It can be very hard when you have a client whom you like, and they refuse to pay what is owed. We find that if you have set policies, you can tell a client, “I’m sorry, this is our company policy.” If you can automate enforcement, it also makes it easier to cope with it, because that is just how your billing system works. Makes it a little less personal, which is a good thing in this case.

We protect ourselves by billing in advance, so we are rarely stung for large amounts of money. But many industries have a standard of billing after work is completed, and people who work in those industries will have to deal with unpaid bills more often.

Requiring payment is not unkind. It is a necessity of a successful business. There are times when it is appropriate to make an exception – but when you do, it is because you feel the desire to help someone whom you feel needs it due to factors beyond their control. It isn’t a daily thing, and it isn’t something you CAN do on all delinquent accounts. Business requires firmness with many things, because there are people who will abuse your good nature, and take advantage of your kindness. I dislike having to deal with that particular reality – that there are people who expect to go through life not paying their obligations, and expecting to get away with it.

In general, I’d rather err on the side of kindness. But I have clients whom I have turned the automated features in our billing manager BACK on, after having disabled them previously. A client to whom I granted an exception on a few occasions, who simply used up my good will. (After the third excuse, I see a pattern that isn’t going to stop, so I quit being an enabler.) Another client who almost NEVER pays until his sites go down, but who then promptly pays. People whom I generally like in other respects, but who will procrastinate or deliberately ignore their obligations unless I require them to by providing a consequence that they dislike.

It is never a pleasant thing to deal with. But it is a factor that each successful business person must face, and determine a way to state the requirements to the customer, and then follow through when payments for services or goods are not made as agreed.

We bought a truck this week. It was the most difficult and exhausting vehicle purchase we have ever made! And it all had to do with supply and demand, and the economic effects of a recession on a particular product line.

We wanted a truck. But not just any truck. A 3/4 ton or better. Now, half ton trucks are a dime a dozen. But the price just JUMPS as soon as you go any larger. There is not much price difference between used 3/4 ton and one ton trucks – a matter of perception of fuel efficiency, mostly. But supply drops, and demand rises right at that 3/4 ton breakpoint.

The problem in Wyoming is that it is a truck state. Everyone and their dog has a big truck. In the current economy, big trucks are not being traded in, or sold used by owners. They are keeping them longer. More people are buying used instead of new. So we now have a shortage of used trucks, and a higher demand for them. This has pushed prices up about 50%.

So what you now find, is higher miles, and higher prices. Not a good combination. That means they are harder to afford, harder to finance, as well as being harder to find.

We searched aggressively for days before finding one. We had a time limit, could not take our time. Every other time we’ve bought a car, the entire process took less than a day, to find the car, and finalize the deal. We’ve even bought two cars on the same day, and it didn’t take the whole day. We found good deals and met our needs quickly. So this time was really exhausting.

We’ve had one other time when outside influences affected a market this strongly, and that was from the seller’s perspective, not the buyer’s perspective. We sold bulk foods, and computers. When 9-11 happened, the computer market crashed, and the bulk food business boomed – so much so that we could not meet the demand, and had to issue refunds because the items simply were not available.

We often don’t connect things like this until we need something that has been strongly affected. When they do happen, we just have to deal with it. Tiring or not, we had to spend the time. High, or not, we had to spend the money, and take what was available.

People who say they don’t have to let the recession affect them are dreaming. Because it will reach out and touch you whether you want it to or not. We can’t choose what comes into our lives, but we can choose how we deal with it when it does.

Check out our new Cottage Industry Consulting and Development services at CottageIndustrialRevolution.com for help in meeting business needs in a trying time.

“All things being equal, business owners do not make more money than those who hold a corporate job.”

All things are not equal. I get up every day and go to work, in my livingroom, and I earn more than just mere money.

• I earn time with my husband. A precious commodity, even though working together in a business has been one of the hardest things we’ve ever done.
• I earn time with my kids. Yes, that is hard too. But worth it.
• I earn the ability to set my own schedule. Mostly.
• I gain the opportunity to work with people I like, and can choose to let go of those I don’t like working with.
• I get the chance to chart my own destiny – to choose the work and business that I engage in.

It isn’t all sunshine and roses, not by a long shot. But it is better than working a job for a boss. The last job I had drove me nuts. I could see so many things that would help, but could not do any of them. I was required to do things that didn’t matter, at the expense of things that did, on someone else’s schedule. It made me truly appreciate what I have in being a business owner.

And now, the money ain’t bad either. Though we put in long years of work to get it to the point where we feel like we have more of the financial choices that we wanted.

But I would not trade it for a job that paid twice this much.

So we’d like a means of accessing the internet on the road. And an iPhone isn’t quite what we have in mind.

We need a high-bandwidth solution which we can use while traveling, which allows us to actually maintain websites in a relatively secure environment. Can’t do that with cell, it fails on two points:

1. Inadequate bandwidth. Most cell plans have a pitiful amount, and it drops to no more than a smidgen of that if you are out of area.

2. Inadequate security. Cell signals are too insecure to use for website work where passwords are transmitted over the net.

We have Satellite internet here at home, as our backup internet provider. So we know the limits of it, and we feel it would be adequate for travel. But we will never use Hughesnet again, and they are about the only consumer provider of mobile satellite.

We finally found a commercial provider which offers consumer priced options – the plans have unlimited bandwidth, so one of our primary problems is solved, and the connection is private, so it is much more secure than cell. The drawback is that the dish has to be mounted on an RV (we don’t have one yet), and the cost is around $7500 for the dish and install.

We have determined that it would be worth it though. Combined with a used RV, we would have the ability to travel as we wished. Traveling is currently a problem for us because hotel connections are often insecure, which limits the kind of work we can do on the road, and because time in hotels is limited. We have dietary issues with hotels too – we have to pack all our food since we cannot eat out, and we have to rent hotel rooms with a fridge and microwave – this puts us in the higher cost bracket. An RV would solve both of those problems.

So we are now planning and budgeting for an RV and the mobile dish. It won’t solve all the problems, but it will give us some very useful business capabilities.

There is a myth out there about business startup. It is perpetuated by magazines like Taste of Home, and other sources that tell stories of small business startups. It goes something like this:

Betty Jean loved to make salsa. She gave salsa to her friends and family for Christmas, and pretty soon people started to ask if they could buy it from her. So she started selling it at craft fairs, and demand became so great that she finally added on a commercial kitchen to the back of her house, and now business is booming.

Makes it sound easy, right? Like you can just lazily indulge in a hobby, and business will come your way without even trying, and people will pay you to do what you’ve always done.

Only problem is, they left out half the story.

Betty Jean spent weeks making the stuff for her friends and family at Christmas. She prepared sampler bottles for everyone at the company where her husband worked, and distributed them at the Christmas party, or sent them to work with her husband. Her husband loved her salsa, and was a great talker. He talked to everyone, and kept asking Betty Jean for more salsa to give to his clients as thank-you gifts. In fact, he gave salsa to everyone he met, eventually. He always thought she could sell it and researched the legal and financial requirements for going commercial long before Betty Jean was sure that is what she wanted to do.

Betty Jean started working the craft fairs – again, working for weeks ahead of time to prepare. She created her branding and worked on a clever slogan. She bought the decorated jelly jars instead of the plain ones, and put cute stickers on the top. She experimented with various pricing and sizes to work out what people really wanted most.

By the time Betty Jean went commercial, she and her husband had BOTH been working hard on laying the foundation. In fact, they’d done more work BEFORE she expanded to a commercial kitchen than many business owners do AFTER they have already obtained a business license.

It didn’t happen accidentally. It happened because they started out putting a lot of effort into it, and when they realized it was a practical opportunity, they pursued it and continued to work on it. Demand from friends and family didn’t happen by accident. It happened from a lot of work – work to share it, work to let people know what she could do. Demand from friends and family just let them know the market really WAS there.

Business never happens accidentally, and it never happens easily. It always takes work.

So the next time you read one of those fairy tales about someone just happening into business without really meaning to, don’t believe it. Read between the lines, because there was a lot of work and effort put into it, whether they intended to form a business from it initially, or not.

“In a month, I’m going to have the top service in this industry.” He bragged. He then confided that he was building a competing product, and had only bought the one he had from us because he thought it had a feature that it did not. Presumably, he wanted to steal that feature.

He bragged that he was a coding guru. Less of one than he thought, because if he HAD been a coding guru, he’d have known that the feature he thought we had was actually impossible – NO ONE can have it, because the technology that it depended upon was controlled by another company, and they would not EVER make it available.

Never mind the fact that the reason he thought we might have this feature is because he did not read the description of our product. No where did it even imply that it had what he wanted.

Shortly after purchase, he had demanded a refund, saying we had misrepresented it, and that the only reason he had bought is because he thought it had something it did not. Our sales pages clearly described the system, and did not misrepresent it in any way.

But I informed him that he could have a refund if he met the usual terms. He had not. He did not want to. He just wanted an easy way out of his original poor choice. He tried to bully us into issuing a refund that was outside of our policies, and we refused.

He paid the monthly fee, and then listened in on some training calls, and asked for a training session, which he then decided not to do, and was insulting to the two people he talked to about it. He stated that he did not have time to do a day training session because he had “a real job”.

He asked some additional questions, which were indicative that he was trying to copy the site. Interestingly enough, these were also questions he should never have had to ask if he were the “coding guru” he claimed to be, because they involved fairly elementary skills.

Then he stated he did not want the site. Tiring of his games, the manager pulled the plug on it – suspended the site. He went into a panic! Where was his site? Now, he had not even changed the default text in the site, it had nothing in it to even suggest that anyone actually owned it, and was not even usable as it was. So no harm was done to his business by suspending it. We just stopped him from copying it and selling it as his own, and our terms of use state that this is grounds for immediate termination of service (we had only suspended, not terminated).

He then filed a complaint with PayPal, stating we did not deliver what we had promised, and that we had misrepresented the product. We can prove that we did deliver exactly what we said we would. But it didn’t matter, because PayPal refused to investigate, because it was more than 45 days after the purchase had been made. It galls me a little that I don’t have the chance to defend ourselves, since we were honorable in the process.

All in all, a rather nice example of someone who inspires absolutely no fear in me. As a potential competitor, such a person is not a threat at all.

1. He wanted to steal instead of coming up with an innovative approach of his own. Now, anyone who thinks this is a way to get rich quick is not firing on all cylinders! Those who look for shortcuts, invariably fail, because there ARE no shortcuts to success. Just hard work, creativity, and perseverance, none of which he had. You can only clone and steal a product or the APPEARANCE of a service. You cannot clone, and cannot steal, the work and effort it takes to SELL that product or service, or the work that it takes to actually run a business. And people who are looking for shortcuts usually bomb on that.

2. He was arrogant, and overestimated his own skills. Now, there is nothing wrong with confidence, and feeling you can achieve something big even if you don’t know everything. But to think you are an expert and can do anything without having to learn anything else, is always a colossal mistake. His arrogance will stop him from doing what he wants to do, will cause him to make costly errors, and will turn off his potential customers.

3. His manner and communication were so poor, and so rude, that he will repel his customers very quickly. It will make it very hard for him to get clients at all.

4. If he thinks that anyone who works their own business does not have a “real job”, then he will never be able to be successful at owning his own business. Because it IS a real job. In fact, it is a job and a half! It is clear that he thought we played at working, and that he could have what we did by playing at working. Such a person won’t ever be a threat to real business owners.

I am predicting that this person will not be able to get a business off the ground at all. If by some odd chance he manages to make a sale or two, he will quickly burn out on the actual work, and drive his customers away by insulting them.

Stupidity, Dishonesty, and Arrogance are never a good combination. But for a business, they are fatal. And when you spot those in your competitors, especially those competitors who haven’t even got a business but brag about how much they are going to do, you may know that you don’t need to seriously worry about them. They are not any kind of threat to honest business owners, because their own actions will get in their way.

The best way to do business is still by being smart, honest, and by being willing to learn. And it always will be.

Update: He never did get it off the ground. His idle statements were just that… idle. All talk, no action in any way that could result in any kind of competition for our company.