Joel Spolsky wrote (another) excellent article called Camels and Rubber Duckies.

This time it's about how to determine the price of your software.

Joel starts off by explaining some economic theory about consumer surplus, how price determines demand for your product, and why the classic demand curve is always downward-sloping.

He then goes into how to calculate the optimal price for selling your software in order to maximize profits according to the demand curve and how segmenting your customers into different groups (according to how "rich" they are) will help you squeeze out as many bucks as possible out of each segment.

Just when you think that everything is fine and dandy he goes on to shoot down everything that he explained and discusses why all that theory is wrong in the software business.

The article does discuss some methods of how to price your software but what you really learn is that there aren't any real rules to follow.

Here's a quote from the end of the article to sum up the frustration: The more you learn about pricing, the less you seem to know..

Encouraging ah?