Subject: Re: street performer protocol
From: Russell Nelson <nelson@crynwr.com>
Date: Sat, 13 May 2000 08:35:13 -0400 (EDT)

Brian Bartholomew writes:
 > Ian Lance Taylor <ian@airs.com> writes:
 > 
 > > More seriously, the main mental block I've had in pricing is the
 > > temptation to set prices based on costs.  Especially when you're
 > > selling free software, you should price based on value to the
 > > customer.  It's not wrong to charge $100,000 for something which it
 > > will cost you $5000 to deliver.  The customer gets value for money.
 > > You get money to invest in improving the product.
 > 
 > What about the customer who is generally as informed about software
 > development costs are you are?

Then you're toast.  The entrepreneurial function in the market is one
that relies on asymmetric information -- you know something about the
problem that the other person does not, and you're going to charge
them for receiving that information.  In this case, the information is
"This stuff is easier to do than you think."  You can charge them for
it even if you never explicitly give them the information.  But if the
customer already knows that, you can't sell them that information.

 > How do you convince him he's getting a good deal?  If you price it
 > high enough, he might commission a workalike, and he knows how to
 > price that workalike.  And when word gets out that you use this
 > pricing method, what does that do for your reputation?

That's why you always try to sell someone the higher-margin product
first.  That's why the most profitable items are on the ends of rows
in grocery stores, and the milk is always farthest from the entrance.
If they don't bite, then you cut back on the fluff.  Reduce the level
of support from "action within 4 hours" to "action within 24 hours".

I recently bid a project on the basis of "If you buy this, you won't
have to worry about any technical details.  Your only worry will be
making enough money to afford me."  It was too pricey for them, mostly 
because they already had knowledgeable staff.  If they didn't, though, 
it would have been cheaper to buy my services than staff up one
position.  Barely.  :)

So I bid the job for 1/5th the price, doing 1/3rd the work.  Oh well.

-- 
-russ nelson <sig@russnelson.com>  http://russnelson.com
Crynwr sells support for free software  | PGPok | "Ask not what your country
521 Pleasant Valley Rd. | +1 315 268 1925 voice | can force other people to
Potsdam, NY 13676-3213  | +1 315 268 9201 FAX   | do for you..."  -Perry M.