I agree to some degree. You should absolutely never be considering development costs as a sole factor for raising your prices, but it absolutely must be a factor. If you blindly invest $250,000 to build something, and then you only make $200,000, you've made a mistake. A slight raise in prices (and considering all other factors, including whether or not it will have a negative impact on unit sale counts) would have quite possibly brought you to break even point.
I think overlooking your development costs (before, during, and then at the time of pricing) is a huge mistake. Of course your customers will have no idea what it costs to build it, but that doesn't really matter as long as it is priced within their budget range. You may not know in advance how many units you will sell, but you sure better make a good guess before you even spend a cent on development. Sizing up your market, guess-timating what percentage will most likely buy (along with a target you'd like to reach), and determining what hold your competitors may already have on that market are key planning exercises. If you spend a large sum in development without knowing this, you may very well end up selling nothing and go out of business immediately. -Kevin On Jan 21, 2010, at 2:57 AM, Andy Brice wrote: > Kevin Elliott wrote: > > You most definitely need to factor in how much it cost you to build > > your product. Even if you didn't spend a dime to build and promote > > your product, your time is worth something (or reduction of income due > > to spending time on building your product). You need to factor this > > into your pricing. If you spent $1 million to build a software app (oh > > god, i hope not!) then you're going to have to jack up the price of > > the product in order to get a return on your investment. > > I disagree. > > I believe you should price your product at whatever price point (or > points) you believe will give you the greatest income (income from sales > - cost of sales), ignoring any sunk costs (such as development). The > optimal price is going to be based on the user's perception of the value > of your product, this is a function of the amount of competition, your > marketing and lots of other factors. It is probably only loosely coupled > to the amount of development effort (if at all) - most customers have no > idea how difficult something is to develop. If your profit isn't a lot > more than your sunk costs you are in trouble, but increasing your price > above the optimal price point is only going to reduce your income due to > reduced sales volumes. Also factoring in the cost of development assumes > you know in advance how many units you will sell, and you can't know that. > > best regards > > Andy Brice > http://www.perfecttableplan.com > http://www.successfulsoftware.net > -- Kevin Elliott Website: Mused for iPhone Buy: Mused in the Apple iTunes App Store [Non-text portions of this message have been removed] ------------------------------------ MacSB email guidelines: http://tinyurl.com/2g55d6 Use MacSB-Talk for off topic messages: http://groups.google.com/group/macsb-talk Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/macsb/ <*> Your email settings: Individual Email | Traditional <*> To change settings online go to: http://groups.yahoo.com/group/macsb/join (Yahoo! ID required) <*> To change settings via email: [email protected] [email protected] <*> To unsubscribe from this group, send an email to: [email protected] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
