Choosing a software business model requires understanding the methods used to sell software. Consider the type of software, distribution, and pricing. Traditional models involve selling licenses per CPU, while web-based applications are sold on a subscription basis. Consultations are evaluated hourly. Marketing is the main expense due to low development costs.
Choosing a software business model for your company requires a basic understanding of the typical methods used to sell software. You must first determine what type of software you intend to design and how you plan to distribute it. Will the software be sold as a one-time standalone product or will it be sold as a subscription model? You may also be partial to designing software on a consultant basis for other companies.
The traditional software business model involves selling software licenses per central processing unit (CPU). The customer pays to install the software on his personal computer (PC) and is given a key code to validate it. The cost is one-time, and technical support is usually free. The software is provided in compact disc (CD) format. If you plan to release desktop software for individual use, consider this model.
If you intend to release enterprise software for business use, consider a similar, but streamlined, version of the traditional software business model. Enterprise software is typically sold on a per-site or per-user basis. A one-time fee is paid to install the software and an additional fee is charged for technical support and long-term consulting. Like the traditional model, the software is typically sold in a CD format.
Many companies now operate on a software business model designed for selling web-based applications. If you intend to sell web applications, the model you want to use is a little different from the traditional software business model. Web applications are often sold on a subscription basis. Additionally, a setup fee is often levied. The software comes as a hosted web application and is accessed using a passcode.
If you plan to run a consulting business, you need to select a model that will increase your profitability. Consultations should be evaluated on an hourly basis. The software is developed according to the customer’s instructions and goes through many testing stages until the customer is satisfied. The downside to this model is that custom software is typically sold only once. As a result, the software should be priced high enough to see a good profit.
Product development costs vary greatly depending on the type of software you choose to develop. An advantage to the software business is that less money is required for the development process than in most other industries. As a result, marketing is usually the number one expense for software companies, as there are so many competing software releases due to the low cost of development. You will need to set up an adequate marketing budget to ensure you outrun the many competitors.
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