Ask Joel – Pricing Products (And there’s more so click that link):

“(1) As a small software company you are NOT going to compete on price. Don’t say to yourself “we have the ability to make this thing cheaper than anyone else, so we should compete on price.” Large companies have all kinds of economies of scale that you don’t have, and you’re not going to be able to sustain a price advantage. Find a different advantage.

(2) Pricing sends messages. Expensive products (like Perforce, $795/copy) “seem” like higher-quality products than cheap ones (Vault, $199/copy) even if they aren’t. People believe that “you get what you pay for.” A new high price may INCREASE your unit sales if the old price sent a message of “Cheap!”

(3) There are natural limits. Home/consumer users won’t spend more than about $20 in cash, or about $50 on a credit card. At most corporations the low level business managers have the right to spend some fixed amount of money on their credit cards without getting any permission, and that amount is usually either $300 or $500. If you set your price at $600 you are arbitrarily losing a lot of these sales because now the low level manager needs to go through purchasing and get approval. For years UserLand Frontier has been priced at $899 … just out of reach of everybody with a corporate American Express”

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