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Advice: Licensing Method

  • Hello, 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 automatically. 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 entity. 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? :-) /Lizardnation

  • Answer:

    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 service. 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 http://www.softwarepricing.com/Publications/license_guide.htm 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. http://www.globetrotter.com/flexlm/lmmodels.shtml 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. http://www.softap.com/forum/forum.asp?FORUM_ID=10 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: http://www.opensource.org/licenses/ and Here: http://www.stromian.com/Open_Source_Licensing.htm 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. Regards, sycophant-ga

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