- what you're talking about here isn't software, it's consulting service and (at least in all companies I worked with) this is usually billed separately from the software license itself (Edit: now that I'm thinking about it, in fact this is even mandatory in my country because of accounting rules: you can do amortization of software cost but not of service cost so you have to bill them separately, and I'd be surprise if such rule was unique to my country actually given that many countries have rules about amortization of software investments)
- if you end up with a recurring license afterwards (which is what were're talking about here because SaaS works this way) then it's not even marginal cost, it's a fixed up front cost and then you have a stream of revenue. You know it's fixed costs because you don't have to pay it again when you're billing the customer for the second year. Same if your license includes a per-seat/per-CPU price.
And the problem with the idea of “marginal cost” is that in practice almost every cost is a fixed cost.
For instance, let say you have two guys that are dedicated to the customization of your product per client. You call this customization “marginal cost” but in reality it's fixed cost, as their salary is due whether or not you have a customer's product to customize this week.
And I'm not being original here, as I said it's straight from the work of 1988 econ Nobel prize Maurice Allais.
- if you end up with a recurring license afterwards (which is what were're talking about here because SaaS works this way) then it's not even marginal cost, it's a fixed up front cost and then you have a stream of revenue. You know it's fixed costs because you don't have to pay it again when you're billing the customer for the second year. Same if your license includes a per-seat/per-CPU price.
And the problem with the idea of “marginal cost” is that in practice almost every cost is a fixed cost.
For instance, let say you have two guys that are dedicated to the customization of your product per client. You call this customization “marginal cost” but in reality it's fixed cost, as their salary is due whether or not you have a customer's product to customize this week.
And I'm not being original here, as I said it's straight from the work of 1988 econ Nobel prize Maurice Allais.