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Subscription service: how to price it? What to avoid?
February 5, 2013 10:27 AM   Subscribe

I have an opportunity to develop a CMS-type web service for a franchise where I will charge ongoing monthly subscriptions instead of an upfront development fee. They have been burned by two failed projects already; I have no interest in selling my hourly labor beyond my day job; hence the subscription idea. I am excited about this opportunity (yay residuals!) but I want to be really careful not to bite off more than I can chew.

Background: There will be 100-500 users (almost 100 today and growing); each is required to pay this monthly subscription for as long as they own a franchise. I am an experienced developer and can easily cover everything from programming to hosting. Assume there are unavoidable businessy reasons to develop custom.

Can you help me think of potential gotchas? I am talking specific points to include in my bid as well as the subsequent contract.

Examples:

1. Scope of work. I know how to lock down the initial scope but how to deal with future enhancements given I am not charging by the hour? I am ok with ongoing work - my husband is a franchisee so I am committed to making this into an A+ product - but how can I make sure it doesn't get out of control?

2. Pricing. Subscriptions are pegged at $25/mo with no room for negotiation. There is possibly room to charge a flat fee for hosting. Customer support will be extra per hour-on-the-phone. Does this seem reasonable? Am I forgetting anything?

3. Price adjustments. How do I go about periodically raising my subscription fees in a way that's equitable to both sides?

Lawyer referrals are welcome however keep in mind that I will not be retaining one until my bid is accepted, so I need advice regardless!
posted by rada to Work & Money (8 answers total)
 
Not 100% sure I understand the model you're describing, but based on my own experience as a developer, you are going to have to take into account how many of your hours per month that $25 buys, and be very very clear about how you will price change/service requests that wind up bleeding outside of that time.

A former employer of mine essentially charged a monthly retainer fee that covered IIRC two hours of billable developer time; anything that went beyond those two hours was charged at an hourly rate.
posted by trunk muffins at 10:43 AM on February 5, 2013


Quick thought: at maximum buildout you're still only talking about $12K per month, which is chump change for hosting 500 users if you're providing a critical business service and they're all end-user types.

Another: Getting paid for support is fine, but dealing with the admin overhead might just kill you. You have the same business infrastructure needs as hosting 50K users. (50 users would be okay as an individual but 500? You're gonna need staff if they're all billed separately.)

Another: Locking down the legal aspects will be critical. When things blow up, who is liable? You need a bulletproof contract for service and everyone will have to sign it.

And finally: You have to define exactly what service you are providing for the fee. Down to the sub-feature. That way, when you want to expand services, you can justify raising the fee if you want to. Also make sure your subscription rate is subject to review annually based on inflation.

In one sense, once you start providing an essential and customised service to to this business, you have them over a barrel. But in another sense, they have YOU over one. Because they could just as easily walk away.

(Personally I'd think really hard before I took something like this on. The money is tempting but the project could very easily snowball into hell.)
posted by seanmpuckett at 10:44 AM on February 5, 2013 [1 favorite]


What about the billing? Thats the part about freelancing I hate the most. Are each of these 100+ users billed separately? Do you need to keep track of all this, who has paid what, etc?

$25/month sounds really cheap to me for a custom CMS solution, but i know nothing except for what I pay for hosting for my projects (and the crappy proprietary CMSes I've had to deal with). Where'd you get this price point from? Have you done your due diligence in figuring out what the going rate for this type of service is?
posted by cgg at 10:55 AM on February 5, 2013


Answering everyone's questions about billing: assume corporate bills and collects, I get a lump sum monthly. (It all rolls into the corporate technology fee per user, I don't touch any of that at all).
posted by rada at 11:00 AM on February 5, 2013


Regarding your first point, I would suggest pricing a service contract high enough that you would be able to farm out future development/bug smashing to a less expensive contractor and still make something from it. This is separate from the end user support you mention in number 2.
posted by heliostatic at 11:14 AM on February 5, 2013


Think long and hard about the fact that under the scenario you're describing, you will be joined at the hip with this project basically forever. Or at least as long as it remains a viable concern. It will be part of your life 24/7. If the potential earnings are not sufficient to support that sort of long term commitment, you should seriously consider a simple fee for service model instead.
posted by spilon at 11:29 AM on February 5, 2013 [1 favorite]


I'm not a lawyer or even a business geek, but shouldn't you spin this off as an LLC or something right away? I mean, it sounds like you're not just a dev but a service provider. If these folks suffer defaced sites or lost orders or extensive downtime or whatever because of your coding error, it shouldn't be your personal assets on the line. And it might also be easier to sell off or whatever in the future.

Incidentally, I'd look hard at using a CMS that can already be multi-tenant, e.g. Wordpress in network mode (formerly Wordpress MU) which only needs a tiny plugin to handle arbitrary domain names or Drupal which does this out of the box. Then just write plugins and enjoy upgrades of the base CMS for free.
posted by Monsieur Caution at 3:39 PM on February 5, 2013


Have you considered what happens when this system crashes in the middle of the day? Or the middle of the night? Or while you're on vacation?

Can all 500 franchisees potentially call you at any time with support questions?

What happens if you spend time writing the software and setting up the hosting, and then the company begins to use it, decides they don't want it, and stop paying after three months?
posted by erst at 8:49 PM on February 5, 2013


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