How do you calculate source code value if someone want to buy it?
I wondering how do I can determine the source code value if someone want to buy it ?
For example, for $1000 product, how much is the source code value ?
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Are you talking about selling your software to another vendor so that he would own it and you would not. Or are you talking about "selling" it to a customer who wants a copy of the source code? If so, what rights would you give the customer? What will he be allowed to do with the source code - compete with you? – Patrick Ny 12 years ago
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I'm talking for another vendor that willing to pay for the source code to be bundled in their product (OEM). I'm not sure about the rights, probably just give them nontransferable right to work with the source code. – Jazar 12 years ago
3 Answers
You can not determine the value of your source code by the price you sell it for.
Source code value is based on what the product is worth to the person buying it. This worth varies based on things like:
- How badly does the buyer need the source code? (If they need it in a hurry, it is worth more than if they need it some time from now.)
- How much would it cost them to code this product on their own? (How many hours did it take you to write and test this software?)
- How hard would it be for them to verify their own software works correctly. (The harder it is to verify, the more value there is to your tested version.)
- How well do you negotiate and how well do they negotiate? (Software source code, like a new car, doesn't typically sell for the asking price. The price is negotiated.)
- How much support is included with the purchase of the source code?
- How much work will have to go to the lawyers to hammer out a contract? (Obviously the sale price must pay for the cost of writing up a legal agreement.)
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I'm thinking there are two scenario for source code selling: 1. Sell the source code when you no longer interested to develop the product. 2. Sell the source code to be used by other party to integrated with their product (for example is component/library often comes with source code library). In my case is the 2nd scenario, how do I evaluate my source code value. – Jazar 12 years ago
The simplest way to set up a cost/effort estimate (which would ultimately lead to a value calculation) is to use the CoCoMo or the Constructive Cost Model. Though there are various methods to calculate the price of a source code, I prefer the CoCoMo model.
In order to learn more about the COCOMO model and the calculation method, click here.
Apart from putting the values from the buyer perspective as enumerated by Gary, you need to calculate your opportunity cost as well.
If you are selling a piece for $1000 and there is a market for 10 units in a month, you make $10,000. You can take a cut say 20% for the maintenance of your website and other supports. This is profit lost by you. This should be calculated in a somewhat conservative manner and very optimistic manner. Typically you should account for 24 months of profit lost in such cases.
It may so happen, that you have spent $20000 worth of effort on the product, and ultimately fees that it is not worth that much, you have to take a call based on lost profit basis.
It is better to create a spreadsheet with all the cost, possible profit and other scenario. This will give you a clarity and help you in taking a decision.
