Business of Software Podcast Ep 4: Software Pricing Demystified (with Rich Mironov)
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Feb 11, 2020 Navigating software pricing is a challenge every creator faces. Discover the importance of aligning pricing with customer value rather than just production costs. Uncover effective segmentation strategies tailored for different audiences, like churches, to enhance offerings. Rich Mironov shares valuable insights that help turn early-stage challenges into pathways for success. Gain a deeper understanding of how to package and present your product's value to maximize profitability.
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Software Cost Distribution Insight
- Software companies' costs are heavily skewed towards sales and marketing, not just development.
- A typical ratio is spending 1 unit on development but 5 units on selling and other expenses.
Profitability Scale in Software
- Once software product crosses break-even, additional sales are almost pure profit.
- The product business model relies on volume since incremental user costs are near zero.
Value-Based Pricing Principle
- Software pricing should be based on value to the customer, not development cost.
- Customers care only about how the product helps them make or save money.