Ok, maybe not everybody… But everybody that publishes or distributes software needs to understand the inherent risks in their business.
As a software developer, this is obviously a problem I can relate to. This is what I’d like to discuss in a bit more detail:
- How are software sold. The easy way and the way that will make you money.
- Understanding monthly licensing models.
- Increasing monthly incomes and growing your business.
- Summary of opportunities and problems.
First, how are software sold?
Software distribution isn’t necessarily difficult. Let’s say you’re selling a product for $30, All you need to do is find people that are interested in your product, sell them on the idea, collect their orders, and then get the product to them.
This is the basic model for selling anything, but with software, it’s usually even easier, since there is no physical product, so you can automate the whole process. You can find prospects by using Google adwords or through a web page optimized for search engines for example, you can sell them on the concept on the web page, and you can have automated systems that get them to pay using a credit card and then give them access to download the product they paid for.
Ok, so where’s the problem? It sounds simple.
It is simple. It’s also wrong. You can make money this way, but you’ll never have a long term business. If you stop actively selling the software, you’ll run out of money pretty quickly.
If you want to make more money (And isn’t that always the goal in business?), you have to sell to companies at a higher price, and you have to sell at a monthly fee. This means you need to convince a company to pay $100 a month (For example), rather than pay a once off fee.
What about hardware?
On top of that, lets say that you need some hardware bundled with your software. Now you have new problems:
- You need to pay for the hardware.
- You need to warehouse the hardware.
- You need to ship the hardware when a sale is made.
- You probably need to pay more for packaging of a physical product.
- You (or the client) need to insure the hardware.
From this, it is clear that you didn’t just increase the amount of money it costs to distribute your product, you also added a great deal of new logistics.
So how do you deal with this extra complications?
- Charge more per month.
- Charge an upfront fee for hardware and shipping.
- Contract for a fixed term (e.g. 1 year).
- Any combination of the above.
Of course, by doing any of the above, you make it harder to close the initial sale, which probably means smaller closing ratios and more sales visits to the client until you can convince a decision maker to buy your product (Assuming you are actually going to your clients and selling that way).
However, these problems only really make it harder to close the sale, and they add extra costs and logistics, but they don’t significantly affect the licensing model.
In the next post, I’ll explore the licensing model on both fixed and variable term licenses so we can understand how much money we’ll make, and then after that, we can look at how we can increase those amounts.