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Jonathan Papworth (1)

Having explored other obstacles to digital change, Person Centred Software founder and director Jonathan Papworth this month examines the thorny question of cost.

Software companies have four costs: sales/marketing; service delivery; infrastructure/hosting costs; and software development costs. These need to be paid for either by customers or investors. The only way to reduce costs to a customer is to lower costs or to spread them across a larger number of customers.

Not all costs can be spread across a larger number of customers though; infrastructure and service delivery scale based on the number of people using a product.

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Even sales costs increase if there are more customers, although not at the same rate. The main items that scale well are software development and marketing.

Therefore, if two products are on the market and one is half the price of the other but they have the same number of customers, then the product double the price is either making massive profits or is spending more on development. Generally, the more expensive is likely to be the better product.

However, if there are two products of the same price but one has twice the number of customers as the other, the one with more customers can spend twice as much on their software development for the same charge to customers.

Therefore, any software company charging a lower price must have either a larger customer base, be providing a poorer customer experience, or be using investment funds and planning to charge higher prices in future to repay the investment.

By looking at the cost paid for software from the perspective of the company providing it should help determine what an appropriate price is to pay.

Digital care software is too important to end up with a poor product and then suffer the need to change later. By all means, negotiate the best price you can, but don’t put price above the benefits that better products provide.

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The author Lee Peart

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