How do you gauge value when starting out?

[aripho]

I've had ambitions to run my own software company for most of my life now but I lack the attribute (confidence? arrogance? knowledge?) to know how to price things.

For example, many years ago, I was working for a Fujistu-owned company that made rather unspectacular customer application portals. The client of one asked if we could add the ability to upload documents to it. If I was doing that on my own, in my spare time, I'd feel like I'd get laughed at for asking for a week's wage (around £700 at the time) to do it - but I saw that we'd sold that piece of work for around £30,000 if I remember correctly. I know that plenty of software developers get contracted at £300+ per day, and can spend at least a week getting settled before adding value, so there's lots of numbers that go over my head (I can walk past shops that are empty and wonder how they are covering 1 person on £12/hr+). So there's clearly a coherence issue for me in how revenue is approached.

I've made something that could be sold as a product that is more 'software as a service' - a tool that has business value, and I've build to be multi-tenanted (so, in theory, an individual or a company could sign up to use and everything is personalised and segregated for them). I have worked, a long time ago, making similar but very primitive software in this space before (Financial Services), but I did it without any additional compensation - at the time, I got to make that instead of doing regular work, and I liked that trade-off. Said company used my product for their main workflow and won 7 or 8 figure contracts off the back of the system I built (even though it wasn't great), but I never actually sold it, or got paid for it excluding my normal PAYE; it would have been in that category of 'IP' that they owned through the course of my work.
Fast forward 15 years or so later, and through family I saw an opportunity to make this for a company that was looking for this kind of thing.

The issue is that they are now interested, having seen it. This is an issue mainly because they are asking about costs, licensing, SLAs, budgets, development costs in the event they want to extend the system, data processing agreements, what happens if I abandon the project or shuffle off my mortal coil etc.
I am back to square one as per the 2nd paragraph - I have no idea. Running things off Google Cloud, it might cost me anywhere from pennies to 2 or 3 figures to host it, depending on how heavy the use is. This is a company that already pays for their main sales platform from a big company that has people working for it (in my head, thus at least 6 figure revenue), so won't be alien to the concept of paying for software - but I am alien to the idea of selling it.

So my fears are either under-selling (trying to pitch at the 'per seat' prices in single figures per month) and at best maybe breaking even or getting beer money, or over-pitching and losing an opportunity to gain a stable client that would help pivot into being a business owner. There's a risk that, because it's an intro through a relative, I could make them look bad if I over-price it and get a negative response.

The company is making £50m+ per year with 20% gross profit, spending £10m on 'admin', amortising £250k per year on "tangible costs including good will", which includes software.
The tool I have made may save thousands by capturing mistakes in their sales process by helping to audit/document. There are staff doing this job, who will use the tool, but they are currently doing it in a legacy way of pen/paper and not actually recording outcomes.

I have done the dumb modern thing by asking AI to help me, which says "A subscription or license fee in the low thousands is a "rounding error" in their budget but a major "win" for their stated goal of improving data systems and customer insight."
Has anyone been in this situation before who can advise? The email I'd have does reference and cc a budget manager, so in my mind they're not expecting to pay 'dinner for one' prices, but I have no experience to back up that assessment. If it's something that's already out there that has a pricing page, you've got a comfortable benchmark to look at and work around, perhaps adjust for competitiveness or confidently price up over time.
(I'm also aware that some companies charge £xx per month, but then the transactional % costs make up the £xx,xxx per month software bills)

 

[DavidAshdown]

I've had ambitions to run my own software company for most of my life now but I lack the attribute (confidence? arrogance? knowledge?) to know how to price things.

For example, many years ago, I was working for a Fujistu-owned company that made rather unspectacular customer application portals. The client of one asked if we could add the ability to upload documents to it. If I was doing that on my own, in my spare time, I'd feel like I'd get laughed at for asking for a week's wage (around £700 at the time) to do it - but I saw that we'd sold that piece of work for around £30,000 if I remember correctly. I know that plenty of software developers get contracted at £300+ per day, and can spend at least a week getting settled before adding value, so there's lots of numbers that go over my head (I can walk past shops that are empty and wonder how they are covering 1 person on £12/hr+). So there's clearly a coherence issue for me in how revenue is approached.

I've made something that could be sold as a product that is more 'software as a service' - a tool that has business value, and I've build to be multi-tenanted (so, in theory, an individual or a company could sign up to use and everything is personalised and segregated for them). I have worked, a long time ago, making similar but very primitive software in this space before (Financial Services), but I did it without any additional compensation - at the time, I got to make that instead of doing regular work, and I liked that trade-off. Said company used my product for their main workflow and won 7 or 8 figure contracts off the back of the system I built (even though it wasn't great), but I never actually sold it, or got paid for it excluding my normal PAYE; it would have been in that category of 'IP' that they owned through the course of my work.
Fast forward 15 years or so later, and through family I saw an opportunity to make this for a company that was looking for this kind of thing.

The issue is that they are now interested, having seen it. This is an issue mainly because they are asking about costs, licensing, SLAs, budgets, development costs in the event they want to extend the system, data processing agreements, what happens if I abandon the project or shuffle off my mortal coil etc.
I am back to square one as per the 2nd paragraph - I have no idea. Running things off Google Cloud, it might cost me anywhere from pennies to 2 or 3 figures to host it, depending on how heavy the use is. This is a company that already pays for their main sales platform from a big company that has people working for it (in my head, thus at least 6 figure revenue), so won't be alien to the concept of paying for software - but I am alien to the idea of selling it.

So my fears are either under-selling (trying to pitch at the 'per seat' prices in single figures per month) and at best maybe breaking even or getting beer money, or over-pitching and losing an opportunity to gain a stable client that would help pivot into being a business owner. There's a risk that, because it's an intro through a relative, I could make them look bad if I over-price it and get a negative response.

The company is making £50m+ per year with 20% gross profit, spending £10m on 'admin', amortising £250k per year on "tangible costs including good will", which includes software.
The tool I have made may save thousands by capturing mistakes in their sales process by helping to audit/document. There are staff doing this job, who will use the tool, but they are currently doing it in a legacy way of pen/paper and not actually recording outcomes.

I have done the dumb modern thing by asking AI to help me, which says "A subscription or license fee in the low thousands is a "rounding error" in their budget but a major "win" for their stated goal of improving data systems and customer insight."
Has anyone been in this situation before who can advise? The email I'd have does reference and cc a budget manager, so in my mind they're not expecting to pay 'dinner for one' prices, but I have no experience to back up that assessment. If it's something that's already out there that has a pricing page, you've got a comfortable benchmark to look at and work around, perhaps adjust for competitiveness or confidently price up over time.
(I'm also aware that some companies charge £xx per month, but then the transactional % costs make up the £xx,xxx per month software bills)

You may be looking at this from the wrong end.

The question is less “what did it cost me to build?” and more “what is it worth to the business using it?”

I suspect the real question is all about what commercial value it creates for them.

If it reduces errors, improves auditability and saves staff time in a £50m business, the price point may be very different from what your instinct as the developer is telling you.

I’d be looking first at the cost of the current process and the cost of mistakes, rather than your build time.

 

[aripho]

You may be looking at this from the wrong end.

The question is less “what did it cost me to build?” and more “what is it worth to the business using it?”

I suspect the real question is all about what commercial value it creates for them.

If it reduces errors, improves auditability and saves staff time in a £50m business, the price point may be very different from what your instinct as the developer is telling you.

I’d be looking first at the cost of the current process and the cost of mistakes, rather than your build time.

I guess the thing that's throwing me off a little bit is that the people who do the actual work aren't paid much more than the legal minimal... (I think they were originally grown quite naively, and quality/standards in general are a new concept to them) but the company does present as a luxury brand so pays the sales staff well.

My developer instinct is terrible with this sort of thing. I guess I'm trying to avoid the type of scenario of like "person demonstrates a product to audience. Audience expect it to be affordable. Audience walk away shaking their head when they hear the price"

 

[DavidAshdown]

I guess the thing that's throwing me off a little bit is that the people who do the actual work aren't paid much more than the legal minimal... (I think they were originally grown quite naively, and quality/standards in general are a new concept to them) but the company does present as a luxury brand so pays the sales staff well.

My developer instinct is terrible with this sort of thing. I guess I'm trying to avoid the type of scenario of like "person demonstrates a product to audience. Audience expect it to be affordable. Audience walk away shaking their head when they hear the price"

I completely understand that instinct, but the price is rarely linked to what the end users are paid.

The real comparison is the cost of mistakes, rework and lack of visibility in the process.

If the tool prevents even a handful of costly errors or saves management time, the value can very quickly exceed the annual salary of the people using it.

That’s often where software pricing starts to make more sense commercially.

 

[aripho]

I completely understand that instinct, but the price is rarely linked to what the end users are paid.

The real comparison is the cost of mistakes, rework and lack of visibility in the process.

If the tool prevents even a handful of costly errors or saves management time, the value can very quickly exceed the annual salary of the people using it.

That’s often where software pricing starts to make more sense commercially.

Yes, I believe that's where the value will be. The difference in both life and business, I guess, is that some will understand it and others won't (pennywise/pound foolish).

The tool I have provides visibility of the whole process, but in a company that doesn't currently have that, it makes you wonder if the perception of value will exist prior to using the tool, and may be appreciated later on.

I'm wondering if a strategy may be to enquire as to what their budget may be, roughly, so I can tailor my 'licensing model' and 'costs' (including adhoc dev costs) to suit them. I'm not experienced enough on the other side to know if this is a blatant "I don't know how to price this", or if I'd be cleverly reversing it onto them.
For example, I could offer exclusivity if the budget looked right

 

[fisicx]

Assuming there will be training, support, updates and whatever. You charge them a monthly fee that will enable you to live comfortably. You give up the day job and contract exclusively for them. In your down time you start looking for other prospective clients.

 

[DavidAshdown]

Yes, I believe that's where the value will be. The difference in both life and business, I guess, is that some will understand it and others won't (pennywise/pound foolish).

The tool I have provides visibility of the whole process, but in a company that doesn't currently have that, it makes you wonder if the perception of value will exist prior to using the tool, and may be appreciated later on.

I'm wondering if a strategy may be to enquire as to what their budget may be, roughly, so I can tailor my 'licensing model' and 'costs' (including adhoc dev costs) to suit them. I'm not experienced enough on the other side to know if this is a blatant "I don't know how to price this", or if I'd be cleverly reversing it onto them.
For example, I could offer exclusivity if the budget looked right

I wouldn’t lead with “what’s your budget?” just yet.

A better first step is to understand the scale of use, how many users, what level of support they expect, likely development requests and, crucially, what the current problem is costing them in time, errors and visibility.

Once you have that, you can shape a sensible licence model around value and scope rather than simply trying to fit a number to a budget.

I’d also be cautious about exclusivity at this stage unless it carries a meaningful commitment on their part.

 

[DavidAshdown]

Assuming there will be training, support, updates and whatever. You charge them a monthly fee that will enable you to live comfortably. You give up the day job and contract exclusively for them. In your down time you start looking for other prospective clients.

I agree the recurring fee model makes sense where there is ongoing support, updates and training.

The only note of caution I’d add is not to build the pricing purely around replacing a salary.

For me, it still comes back to the value to the client, the level of support commitment and the risk of becoming overly dependent on a single customer too early.

A sensible monthly licence plus separately scoped development work often gives a better balance for both sides.

 

[aripho]

I wouldn’t lead with “what’s your budget?” just yet.

A better first step is to understand the scale of use, how many users, what level of support they expect, likely development requests and, crucially, what the current problem is costing them in time, errors and visibility.

Once you have that, you can shape a sensible licence model around value and scope rather than simply trying to fit a number to a budget.

I’d also be cautious about exclusivity at this stage unless it carries a meaningful commitment on their part.

I know the scale as it currently stands - I think it's around 20-50 users in terms of 'viewership' - sales people with profiles and presence for reporting, including up to 10 who would be authoring data onto the system.

Assuming there will be training, support, updates and whatever. You charge them a monthly fee that will enable you to live comfortably. You give up the day job and contract exclusively for them. In your down time you start looking for other prospective clients.

Of course, ideally, I could say "slip me £5k a month and that will include x days of development and support", but I'm not at a level of expecting one client to offer that (though it would be nice).

I agree the recurring fee model makes sense where there is ongoing support, updates and training.

The only note of caution I’d add is not to build the pricing purely around replacing a salary.

For me, it still comes back to the value to the client, the level of support commitment and the risk of becoming overly dependent on a single customer too early.

A sensible monthly licence plus separately scoped development work often gives a better balance for both sides.

Realistically, my thoughts were basically to offer a point of view where I can offer for them to manage and pay for their own Google Cloud project (which may even be covered at a 'free' level), where I will deploy to so they own their own data and it's covered from an ideal point of view for them to manage their own data processing and security. If - and a big if - they also included the platform hosting, they would effectively have escrow, but with a licensing cost to cover that they don't own the IP unless my company abandons it or discontinues trading (covering another aspect of 'security' from their POV).
This would mean overall that they would need to offer more commitment to supporting the initial and on-going costs, but would give them a more boutique experience.

The alternative being they take the cheaper sub option, but would have a multi-tenancy experience as required to support the product financially

 

[DavidAshdown]

I know the scale as it currently stands - I think it's around 20-50 users in terms of 'viewership' - sales people with profiles and presence for reporting, including up to 10 who would be authoring data onto the system.




Of course, ideally, I could say "slip me £5k a month and that will include x days of development and support", but I'm not at a level of expecting one client to offer that (though it would be nice).



Realistically, my thoughts were basically to offer a point of view where I can offer for them to manage and pay for their own Google Cloud project (which may even be covered at a 'free' level), where I will deploy to so they own their own data and it's covered from an ideal point of view for them to manage their own data processing and security. If - and a big if - they also included the platform hosting, they would effectively have escrow, but with a licensing cost to cover that they don't own the IP unless my company abandons it or discontinues trading (covering another aspect of 'security' from their POV).
This would mean overall that they would need to offer more commitment to supporting the initial and on-going costs, but would give them a more boutique experience.

The alternative being they take the cheaper sub option, but would have a multi-tenancy experience as required to support the product financially

That’s a very sensible way of looking at it.

I particularly like your point about separating the infrastructure and data ownership from the development/support relationship, as that can give the client greater comfort around continuity and security.

I think the key commercial question then becomes less about replacing a salary or charging a fixed monthly amount, and more about aligning the fee with the value of the solution, the level of support commitment and the business risk it removes for them.

Where the system becomes business-critical, clients will often pay more readily for certainty, responsiveness and ownership safeguards than for development time alone.

The boutique route may well justify a premium if it materially improves confidence and control from their side.

 

[lmkeller14]

Price it against what those errors cost them, not what it cost you to build it.

 

[aripho]

Price it against what those errors cost them, not what it cost you to build it.

It's a difficult one, because I don't know how much of that I would be expected to be privvy to.

I do know that a salesperson got a very large bonus for one particular itinerary but made some quite fundamental mistakes in it that, I believe, cost the company 4 or 5 figures (on a 6 figure sale).

I think a lot of issues are just not visible for them. It's a company that is quite established, but has effectively bootstrapped with no experience, so this thing is driven by experienced people coming in and seeing all of the problems that were just masked, in blind spots, or covered up.

Where it blows my mind a little is that I've worked for boutique software companies, like warehouse management systems, in the past, and thought of an 8-man company as tiny (with about 10 clients), but the scale of revenue to afford just 1 person's salary seems like an outrageous reach to me based on presuming people wouldn't pay thousands per month when there are your shopify type companies who come across as being lunch money subscriptions