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Finding the Money

So where exactly is the money? Let's start with what we mean by profit. There are two types of profit:

  • Net savings from the use of a product (your profit margin improves)

  • Money made by other people purchasing your product

Sounds simple enough. Either you make money or you save money, which makes your profit bigger. Of course, you need to take into account the true costs. If you or your customers need training, extra equipment, and so forth, the true cost could be greater than the solution. We're talking about Total Cost of Ownership (TCO). For example, in addition to the purchase price of a car, there is also insurance, maintenance, and gasoline. With software, we add the following to the total cost of ownership:

  • Maintenance/licensing fees

  • Training for personnel or customers to use the software and/or change business processes

  • Integration with other business software

  • Problem resolution

  • Customization to meet business needs

  • Equipment (including maintenance, training, and other types)

  • Infrastructure to host equipment, including operations centers, computer centers, routers, firewalls, environmental systems, and so on

  • Management of the system

  • Work to evaluate, design, or build the system

If your company doesn't sell software, there's another class of income. Derived income is created through improvements in how you do business. This class of income is also called strategic because it may place your company in a new position relative to your competitors. In fact, the easy way to sell new technology like JXTA to management is to mention that the competition is already using the technology and you need to catch up to them. Or the competition doesn't use the technology and you could be more competitive if you had the new technology.

What types of derived benefit are we talking about? Here's a list of benefits that result in a derived income:

  • Faster or more efficient process
  • More accurate process
  • Enhanced user/customer monitoring
  • New features
  • Better look and feel
  • Content
  • Reduced workload for support team
  • Lower cost to user or customer

Now that we've covered much of accounting 101, let's look at products you create to sell and make money.

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