When is it Cheaper to Spend $450 rather than $99 ...?
When is it Cheaper to Spend $450 rather than $99...? A potential INDEXU customer recently asked me whether he should purchase INDEXU or a competing product costing $450 - 4 and a half times the cost of INDEXU.
While I happen to really like INDEXU, here is what I told him:
While the "knee-****" answer is that it is always better to purchase the cheaper item, the real answer is not nearly so obvious.
While you need to look at the cost of the product, there are other things to consider. For example, you don't buy a car when you need a truck even if the price of the car is much cheaper. And you don't buy a small truck if you need a big truck even if the price of the small truck is much cheaper,
But there are no absolutes. If the car is cheap enough compared to the truck, you may decide that you can live with a car instead of a truck. And the same with a small truck compared to a large truck.
And so it is with software. You don't buy a FAQ software program if you are building a links directory. And you don't buy a $99 software package to run DMOZ.
So how do you chose the right links directory software? The focus of this post is not so much on the functionality and quality of the software but rather the cost of the software. There are many factors to consider and cost is just one of them.
But what about the cost? When is it Cheaper to Spend $450 rather than $99...? A number of years ago, there was a costing method called the Life Cycle Cost ( LLC ). It made sense to me and I like to use it in situations like this.
LLC says that the initial cost of item is only one part of the total cost of a item over the useful life of that product. As an example, let's say that you are going to purchase a refrigerator and are considering two well-know brands. Refrigerator A costs $400 and refrigerator B costs $500.
Easy, right? You should purchase refrigerator A. But maybe not.
Let's say that each refrigerator will last 10 years and that refrigerator A costs $50 per year to operate and refrigerator B cost $10 per year. So now the total cost of owning refrigerator A is $900 and the total cost of owning refrigerator B is $600. The LCC of refrigerator A is $900 vs the LLC of refrigerator B of $600. Ignoring the time value of money to keep this simple, now which is cheaper to purchase?
Now the correct choice is to purchase the $500 refrigerator instead of the $400 refrigerator. How can you apply this to the purchase of links directory software.
Let's say you are considering INDEXU which costs $99 and a leading competitor software that cost $450. On the basis of the initial costs, you would purchase INDEXU at $99. But if you consider the LLC, it may be cheaper to purchase the $450 software.
Let's say that the $450 has lots of plugins which have a nominal (small) cost to buy. You need several of the plugins to effectively offer a "good" website to your websurfers.
Let's say that INDEXU does not have these features or plugins. You have already determined that they are essential to your website ( "you need a big truck, not a small truck" ). If you want them, you are going to have to pay someone to write program MOD for INDEXU.
If the cost of the MODs are less than say $350, you might decide to buy INDEXU. The LLC of INDEXU is less than $450. If the cost of the MODs are more than say $350, you might decide to buy the leading competitor. In that situation The LLC of INDEXU is more than $450.
Use the Life Cycle Cost" ( LLC ) to help you decide the cost of each program. You may find that it is cheaper to purchase the more "expensive" program.
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Last edited by esm; 07-31-2007 at 06:50 PM.
esm
"The older I get, the more I admire competence, just simple competence, in any field from adultery to zoology."
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Originally Posted by dody
