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How do I Choose the Best Software Business Model?

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  • Written By: Ryan Russell
  • Edited By: Lauren Fritsky
  • Last Modified Date: 25 November 2016
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    Conjecture Corporation
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Choosing a software business model for your company requires a basic understanding of the typical methods used to sell software. You need to first determine what type of software you intend to design and how you plan to distribute it. Will the software be sold as a one-time standalone product, or will it be sold as a subscription model? You may also be partial to designing software on a consultant basis for other companies.

The traditional software business model involves selling software licenses per central processing unit (CPU). The customer pays to install the software on his personal computer (PC) and is given a key code to validate it. The fee is only one-time, and technical support is typically offered for free. The software is delivered in compact disc (CD) format. If you are planning on releasing desktop software for individual use, give this model consideration.

If you intend to release enterprise software for business use, consider a similar, but tweaked, version of the traditional software business model. Enterprise software is usually sold on a per-site or per-user basis. A one-time fee is paid to install the software, and an additional fee is paid for long-term technical support and consultation. Like the tradition model, software is typically sold in CD format.

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Many businesses now operate on a software business model designed for selling web-based applications. If you intend to sell web applications, the model you may want to use is a bit different from the traditional software business model. Web applications are often sold on a subscription basis. In addition, there is often a setup fee levied. The software is provided as a hosted web application and accessed via a pass code.

If you plan on operating a consulting business, you need to select a model that will heighten profitability. Consultations should be priced on a hourly basis. Software is developed based on the instructions of the customer and goes through many trial phases until the customer is satisfied. The downside of this model is that the custom software is typically only sold once. As a result, the software should be priced high enough to see a healthy profit.

Product development costs vary greatly depending on the type of software you choose to develop. One upside to the software business is that less money is needed for the development process than in most other industries. As a result, marketing is usually the number one expense for software companies, as there is so much competing software released due to the low cost of development. You will need to put into place a proper marketing budget to ensure you rise above the many competitors.

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