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Q: Advice: Licensing Method ( Answered,   0 Comments )
Subject: Advice: Licensing Method
Category: Business and Money > Economics
Asked by: lizardnation-ga
List Price: $10.00
Posted: 11 Jan 2003 14:46 PST
Expires: 10 Feb 2003 14:46 PST
Question ID: 141676

I've got a software application integrated with a service provided to
the leisure/lodging industry that I would like to price.

The application does guest management, billing, decentralized
reporting and updates related public sector agencies with needed data

The application does update a few related websites and markets
available idle resources.

It should probably have a reasonable purchasing and setup fee, then a
maintenance and support annual fee.

Some of the clients are small scale and have very humble setups and
some are at the tip of the upper market.  How do I create a pricing
policy which doesn't come across as a revenue sharing method as that
would likely be rejected, though I want to charge as usage and benefit
increases and decreases accordingly.

I was thinking of charging X per guest passing through the entity by
charging a fixed fee when a guest enters into the entity no matter how
much time they spend there or charge a per day/per guest amount at the

They would usually have one front end application licenses or two at
the front desk and maybe one or two at the back end offices and no
servers as those would be hosted remotely at most location where back
end workstations are not needed due to the small size of the business.

We might benefit later from the data by providing a portal service of
all the available resources of all entities we serve and have adequate
contractual clauses to allow that to flow smoothly when we try it out.

Ideas? :-)


Request for Question Clarification by sycophant-ga on 21 Jan 2003 00:46 PST
What are you looking for in an answer here Lizardnation? I can detail
a number of licencing options, and how they might work. Would this be

What sort of material are you looking for to back up any suggestions I
may make?

Do you want me to propose actual figures, or just schemes, in which
the pricing can be determined by you later?

This is right up my alley really, having worked in the development of
similar projects, so I would love to help you come up with some


Clarification of Question by lizardnation-ga on 21 Jan 2003 02:56 PST
Hello Sycophant,

I'm interested in a scheme or two and example pricing.

Referencing material can be anything you feel is sufficent to
examplify your scheme or a close enough scheme that resembles it.

The simpler, the better as my clients are not going to be the sort
used to licensing and schemes as do most IT heavy practices.

Thank you.


Request for Question Clarification by sycophant-ga on 21 Jan 2003 14:51 PST

I am underway, and have an answer in the works, but it's a bigger
scarier challenge than I imagined, so it may be a little while until I
can post it. But it is certainly forthcoming!


Clarification of Question by lizardnation-ga on 22 Jan 2003 00:21 PST
I'm glad you're up to it. :-)

Subject: Re: Advice: Licensing Method
Answered By: sycophant-ga on 22 Jan 2003 01:35 PST
Okay, well let's start by listing the possible considerations that can
be incorporated into the plan:

1) The Software - the initial acquisition.
2) Installation Base - number of client installations.
3) ASP Model - an externalised backend server (possibly?)
4) Through-put - volume of bookings/billings run through the system.
5) Support Contract - offsite/onsite support options.
6) Upgrade Subscription - ongoing software upgrades.
7) Site Subscription - marketing thought site tie-in.

As I mentioned, this is somewhat similar to projects I have been
involved with, so first I will rattle off some of the things that came
up then...

Firstly, most companies expect to pay money upfront for software, and
many expect an ongoing license cost, so none of the ideas we are
likely to come up with are going to be foreign to them.

A software purchase price is pretty much a given, and this can be
priced to simply defer basic packaging and provision costs if there is
going to be a continuing revenue stream for you, it also presents less
of a financial hurdle for businesses looking to adopt your software.

Another common expense, and one that's not going to be difficult to
explain is a support contract or service. Most businesses are aware
that they are not IT experts and recognise the need for support then
issues arise. However, the higher the purchase price, the more
expectation there seems to be of included support, but with a low
purchase price, the idea of additional support arrangements is quite
easy to swallow. These arrangements can either be on a per-incident
basis or a flat-fee cover basis.

The ASP model - you mentioned the possibility of providing a remote
back-office service, to allow small businesses to set up without
having to deploy unnecessary servers. This is especially easy to
justify when the other option is clearly a larger deployment, for
example a package is also available including on-site back end
services but for a larger initial purchase and ongoing support price.

Installation base pricing is fairly common within larger organisation
where licenses are likely to be on a per-seat basis, and this option
may fit in well with some of the others to provide an overall
licensing model for you, however can become difficult when a business
is growing and future expansion is unclear.

Upgrade subscriptions are nothing new either, and are often tied in
with support contracts to ensure a consistent version deployment and
ensure supportability.

This leaves throughput pricing or a commission-like structure, which
seems like it could be very appealing in a situation like yours as
no-one should need to pay more than is fair for their level of use.

Finally, the tie in with websites is great, and allows for a simple
marketing method for these clients, however the value of marketing and
advertising is hard to determine even for large companies, and may be
quite tricky for smaller businesses. It seems that despite the huge
potential here, it may be difficult to charge a premium price for the

Here are some options I am thinking of, the numbers are arbitrary
really as I am not aware of the costs of the software of the likely
customer base, both of which will obviously affect your calculations.

Option One:
- Software Purchase:       $299
This provides the purchaser with the software and manuals and a
two-seat licence.
- Addition Licence:        $49/seat
- Support Contract:        $199/year
- Site Listing:            $10/mth
Includes unlimited email support, and 10 telephone support tickets.
Also provides minor version upgrades.

Option Two:
- Software Purchase:       $199
This provides purchaser with software, manuals and site licence.
- Commission Licencing:     $12.50/100 completed bookings.
- Support:                 $5/incident phone/email support.
- Site Listing:            $10/mth

These two options provide an initial earning, plus ongoing income.  I
would suggest that quarterly billing might be best for dealing with
the ongoing fees. Obviously though the tie in system you plan to have,
you could calculate the commission billing as required.

I suggest one of these two or a variation upon them would probably be
the most suitable over a wide range of clients.

Obviously both of my basic plans have benefits from the client's
perspective as well; Option One is very predictable, the client knows
exactly what they will need to pay, and they can work these figures
into their budget. Option Two appeals as there is a lower up-front
cost, more flexibility for additional internal deployment and
additional costs are based on use and therefore directly reflect
actual value.

What I haven't include is a model including fees for ASP services, as
your description indicates that this will be the default for most
clients, however what does occur to me is that there maybe an
additional model for larger clients who do not want to have external
centralised servers. These clients would therefore pay for an internal
replication of the backend setup.

Also, I have provided no model that does not include an ongoing fee
structure. This is because your project, as you describe it, does not
seem to suit a one-off purchase model. There is an intensive tie-in
with backend services and also I would imagine there is the
expectation of ongoing software development.

There are also some interesting resources available:

This site offers a guide book explaining a variety of licensing models
and how they may be best applied. Unfortunately this is not detailed
on the site itself, but if you want more background it may be worth
the price. It is $49.95

Globetrotter's FLEXlm technology may not be what you need to manage
you licensing, however they have a mighty list of licensing models,
which they build upon.

Softap has a software pricing and licensing forum, however it seems
quite new and currently has very little content. Of course, this will
hopefully change, and it maybe worth keeping an eye on.

And of course, you could decide you want to do it for love, rather
than money (although not exclusively so) and join the open source
movement. License details here:
and Here:

In most cases, I realise you are paying for my research rather than my
personal opinion, but in this case it seems a bit of both is best, so
I have provided mainly my opinion, on the grounds that I believe I
have a good basis for understanding based of my time in the industry.
I have also engaged in some research, however for the most part it
seems that licensing models are as diverse as the software they cover
and the clients they relate to.

I hope my answer provides some help. If you still want more, let me
know and maybe I can try a slightly different approach.

There are no comments at this time.

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