Comments on: Breakeven Analysis Is A Product Manger’s Secret Weapon http://www.theaccidentalpm.com/pricing/breakeven-analysis-is-a-product-mangers-secret-weapon Home Of The Billion Dollar Product Manager Where You Too Can Learn To Be A Wildly Successful Product Manger Fri, 30 Jul 2010 20:57:33 +0000 hourly 1 http://wordpress.org/?v=abc By: Dr. Jim Anderson http://www.theaccidentalpm.com/pricing/breakeven-analysis-is-a-product-mangers-secret-weapon/comment-page-1#comment-793 Dr. Jim Anderson Sat, 03 Oct 2009 14:05:56 +0000 http://www.theaccidentalpm.com/?p=1014#comment-793 Robin: good question. However, software (and other digital products) really don't have the economies of scale that you mention. The reason is that your cost of production (variable costs) doesn't go down the more you sell -- digital products (pretty much) have a one-time cost to create them and then all additional expenses are just overhead (shipping, etc.). Instead you need to view your software development costs as fixed costs. Your variable costs are going to be minimum for each unit sold (really minimum if it can be downloaded -- no shipping!). This means that you'll have a huge profit margin. Great news. However, remember that the software biz has huge fixed costs also that need to be paid for -- but this is not to be included in your pricing. Hope this helps. Robin: good question. However, software (and other digital products) really don’t have the economies of scale that you mention. The reason is that your cost of production (variable costs) doesn’t go down the more you sell — digital products (pretty much) have a one-time cost to create them and then all additional expenses are just overhead (shipping, etc.).

Instead you need to view your software development costs as fixed costs. Your variable costs are going to be minimum for each unit sold (really minimum if it can be downloaded — no shipping!). This means that you’ll have a huge profit margin. Great news. However, remember that the software biz has huge fixed costs also that need to be paid for — but this is not to be included in your pricing.

Hope this helps.

]]> By: Robin Zaragoza http://www.theaccidentalpm.com/pricing/breakeven-analysis-is-a-product-mangers-secret-weapon/comment-page-1#comment-789 Robin Zaragoza Tue, 29 Sep 2009 17:46:32 +0000 http://www.theaccidentalpm.com/?p=1014#comment-789 Jim - how do you apply this when you're talking about software and there are economies of scale with each new sale? Specifically, your current margin would always be changing. Maybe define CM as the average for the previous month to nail it down temporarily, but keep adjusting it over time? Jim – how do you apply this when you’re talking about software and there are economies of scale with each new sale? Specifically, your current margin would always be changing. Maybe define CM as the average for the previous month to nail it down temporarily, but keep adjusting it over time?

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