This works only if the product you are selling has near 100% margin. If there is COGS involved (cost of goods sold), if your widget costs $15 to make it does not matter what target customer purchasing power is, you have to sell it at >=$15 or you are losing money. This is why you can not go to Somalia and purchase a Tesla for $10k or rent AWS compute at 1/10 of price for others.
> If there is COGS involved (cost of goods sold), if your widget costs $15 to make it does not matter what target customer purchasing power is, you have to sell it at >=$15 or you are losing money.
Reason why there's an uptick in SaaS companies in Eastern Europe, Asia, and West Africa. They can out-compete on price already and will gradually manage to build software of similar quality as their counterparts living in higher cost-of-living countries.
This has been Freshdesk [0] / Zoho (both based in India) modus operandii for one to two decades now. And one I'm keen on living upto.
yah, this is all econ 101 stuff. what you're talking about is a specific application of marginal analysis to a firm's pricing policy, namely, making sure marginal revenue is greater than marginal cost (or, MC ≤ MR), ignoring sunk costs (like fixed costs). in software, fixed costs are high, but variable costs (e.g., COGS) are tiny, which is why software can be priced at just about any level (including "free") and still be profitable (in the absence of competition).
the other economic concept at play here is arbitrage, which is being able to buy low and sell high risk free.
in most cases, those (as well as licensing) aren't considered direct, variable costs, but rather sunk costs, as they exist regardless of the number of customers served, even if there's a rough correlation with size. this is akin to sales vs marketing costs. the former is usually a direct cost, while the latter is not, even though marketing costs often scale (roughly) with size too, but most of that cost isn't directly attributable to a specific revenue opportunity as in the sales case.
If you have minimal customers, then your server costs don't need to go above the double digits. Servers will be almost 1:1, and licensing is usually 1:1. Considering them to be sunk costs is doing the math wrong. It's not like marketing at all.
perhaps consider chesterton's fence here. the topic at hand is pretty boring accounting 101, not some exotic double-dutch irish sandwich with a macau cherry on top. in most cases, you don't (and typically can't) attribute the costs of a given server to a single customer, and the licensing cost discussed here is not what you're charging, but what you're paying to provide the service (e.g., your database licensing costs are not 1:1 mappable to each customer).
It's only chesterton's fence if I treat your method as a baseline.
I thought you meant some kind of pass-through licensing, but otherwise the expensive stuff like database licenses generally charge per core, don't they? That's going to scale very directly with your number of customers. If you need 4 web server cores and 1 database core per ten customers, then you should not be treating servers as a fixed cost, you should consider each customer to cost half a core and 1/10th of a database core license fee. It's not perfect but it's much much closer to reality than thinking about servers as a fixed cost.
Don't go buy 150 servers in anticipation of customers you don't have.
it's the accounting/finance profession's fence you're quibbling with here, not something i just made up. those are indirect costs. in marginal analysis you only consider direct costs, not indirect ones (for background: https://www.investopedia.com/terms/d/directcost.asp).
"Wages of production staff" are more indirect than server costs if you're getting servers as-needed. Server use is easier to tie back to specific customers than employees, in part because you can add and remove them so easily.
"A direct cost is a price that can be directly tied to the production of specific goods or services." yes that is the case here.
And if I look at the first search results specifically talking about servers:
you can't simply classify servers or employees categorically as direct or indirect costs, but must consider how the inputs contribute to outputs. a janitor is a direct cost for a cleaning business but not for most others. if you're aws or ibm, then yes, (fractions of) servers are a direct cost. but servers are too course of an input, and non-linearly related, in most saas businesses (e.g., stripe or hubspot) to be apportioned to individual customers. that's not the same as being able to statically divide server costs by the number of customers to reach a per-customer cost, which you can do with any business and any cost.
take an accounting or pricing class if you're really interested in this stuff. that will explain it much better and more in depth than a few sentences here can.
If you're doing SaaS you can measure exactly how much server is used by each customer. If you choose not to, that's your problem.
And servers do not have to be coarse. They come in all sizes.
In particular I want an explanation of how servers are less direct then the wages of production staff. You can measure output similarly, and you can scale your number of servers much faster than you can scale your number of staff.
Well, you didn't address my logic and you didn't address my sources (the one from ibm is not talking about being ibm), and you didn't link your own sources that mentioned servers. You managed to get downvoted for being so unhelpful.
So even if you're the rightest person in the world, you've done an awful job of commenting. There's no reason to believe you, or to believe that you would actually address what I said if I did pay you. Otherwise I would actually be tempted to do so.
Good point. Could the PPP concept just be applied to your profits rather than your revenues, with a floor under which you just don't sell? Or, in the interest of equity at the cost of a little more complexity, deliberately round up pricing in profitable-after-COGS regimes to subsidize loss-after-COGS regimes?
Their terms state you can also be a non-US Resident Citizen (expat). But generally yes that service is only for US Persons.
I wasn't really making a point about privacy.com specifically my comment was more to imply there are services that allow for arbitrary billing addresses.
Debit / credit cards always show country where card is issued. By now you literally can't get card from a country you are not reside in. I guess there are few prepaid card exceptions, but they're generally rarely accepted anywhere. Banning those on e.g Stripe is super easy and a lot of SaaS do it.
I not saying it's impossible to bypass these checks, but you either have to be very tech-savvy person to do it right or you you even have to break the law.
Good luck explaining sunken costs here! I have had many, many discussions about this on this very site and I think that since it is so non-intuitive to anyone that has not taken business courses they just do not believe it.
