Charging Monthly for Software

[bacterozoid]

Hey folks,

I've been in and out of the business world (and not in these forums) as I try to figure out exactly how I want to approach things and what I want to sell. I've done some freelance work on the side, but I've got a bigger idea and I'm not sure about how I should charge clients for it.

The idea is essentially a piece of web-based software for use by basically any company that wants to improve management efficiency.

The two options are: one-time fee and monthly fee.

I would love to charge monthly - it's a much more reliable source of income that might tend to look small for a business but can add up quickly for me. If I get 10 clients at $20/month, that's an easy $200/month in my pocket (I have a day job, so this is all icing on the cake). Granted, it could take years before I actually make what I believe the software is worth, but that's a risk I'm willing to take.

My question is this: how do people respond when presented with a monthly fee for software? Is it worth trying, or do I just stick with a flat fee? Any business owners that can provide some perspective? Thanks!

Edit: One of my selling points, should I go with the monthly charge, would be that you are making money in the end. If I can save one person 2 hours of work and only charge you $20/month, then you're coming out on top.

[nealrm]

I would go with the payment, either monthly or yearly. Otherwise you could end up maintaining a site forever that is no longer bring in revenue.

[jimr451]

Some companies do both - "buy" the software for a fixed fee (with 30 days support included) - or "rent" a copy, hosted on your servers.

The thing with the "rental" (monthly fee) is that you will be expected to provide support, upgrades / bug fixes, etc. If you don't provide regular upgrades and improvements to the program, you risk losing the customers you signup.

To your original question, my experience is that many companies shy away from "monthly" fees - small businesses especially. But I think it depends on how compelling your product is.

-Jim

[vangogh]

It depends on the software and how I'll use it. If it's something I download and install on my computer I won't pay a monthly fee. If what you're selling is a service online tied to a specific piece of software they I would be willing to pay a monthly fee. Your case is a web application so a monthly fee is appropriate. Sell it as a service and not as a software product. I'm more likely to pay an ongoing fee for a service than for a product.

Let people know that unlike software they purchase they get free upgrades with your service and you're always working to improve it (assuming you actually are working to improve it of course).

To get the monthly fee the key is going to be selling this as a service than as a single product.

[Harold Mansfield]

I agree with VG. Maybe it's just in the language, but I'll pay for a service that I want or need but they generally involve some kind of database of information, entertainment or something that I need to make money with my business.
I shy away from software products that want a monthly fee. I don't like it. I'd rather spend what it costs up front.

Here is a good example:
There are companies that provide online back ups of your files..even your OS. I personally think they are a waste of money because you can buy an external drive with a terabyte of storage for $100 or less and store your own back up.

But I pay monthly for a lot of services and memberships that provide me some kind of value.

[bacterozoid]

Thanks for the tips, guys! I'm definitely going to go with the monthly pricing and I'll be sure to pick my vocabulary carefully. I 100 percent believe this is a service people would be willing to pay for so I think it's going to work out.

Now I've got a ton of planning and designing to do. :)