Introduction
Well, the results are in from the first week of SizeUp sales under the "Name Your Price" shareware pricing model. Following are some numbers, a brief analysis, and my thoughts on the whole process thus far. I'm happy to share these details for any other developers that might be interested in trying this variable pricing model with their own products.

For those who aren't aware, SizeUp is Irradiated Software’s first for-pay application on Mac OS X.

If you haven't had a chance yet, now might be a good time to read my blog post on software pricing and my thoughts behind “Name Your Price” specific to SizeUp. Additionally, be sure to checkout the SizeUp product page.

Some people have asked why I opted for a "Name Your Price" shareware model over donationware. Before choosing "Name Your Price", I researched other Mac Developers who chose a donationware model and found Eric Peyton. Several years back Eric wrote Fire.app, the defacto chat client on Mac prior to iChat. Over the years Eric worked on Fire he raised a meager $205 in donations. I concluded that very few users will pay for software if they can get it for free.

Additionally, software licensing encourages users to consciously participate in the process. The "Name Your Price" model gives customers a voice in this process.

On the SizeUp purchase page, to help the customer with "Name Your Price", two prices are provided as a guideline: a $7.99 suggested price and an enforced minimum price of $1.28.

"Name Your Price" is among a class of alternative pricing model (other examples being Pay By Subscription, Pay Per Use or Pay By Usage, etc), but has the distinct advantage of being a price discovery mechanism as well. This approach may be good for you if you aren't sure how to price your software. The numbers help to point out the mistakes I made with my initial attempt at "Name Your Price".

In the first week I received 100 orders with an average price of $5.02 per order which is amazingly close to my original gut feeling of $5 and speaks pretty loudly to how much customer feel this software is worth (i.e. price discovery mechanism).

Here is a histogram showing the frequency distribution of purchase prices by 50 cent increments (rounding up):

The first thing I notice about this distribution is the clustering at the lower end (a high number of low price purchases) and the spike in the middle. The spike represents the suggested price of $7.99 which happens to be the default value set in the shopping cart. When I see an order for the default price I think that either the customer agreed with my justification for the $7.99 price point, or they didn't read the rational at all and instead just blew through the purchase process. A more accurate test might be to leave the value blank and force the customer to input their own. I probably won't go that far, but it's something to think about if you plan on implementing "Name Your Price" for your own product.

The max purchase price was $15.
9 orders at the minimum price of $1.28.
22 orders less then $2.
23 orders for the suggested price of $7.99.
10 orders greater than $7.99 with $10 being the most popular.
(Since the orders were out of 100, all numbers above translate into percents as well...)

Even though the average purchase price is about $5, the high number of small value purchases push the cost of sales (COS) way up. Currently, payment processing fees alone account for a 16% cost of sales. If everyone instead purchased at the $5 price point the COS would only be roughly 8% (based on an average of PayPal and Google Checkout fees*). This difference in cost could add up to a $40 savings on the $500 gross this week or roughly $2000 a year. This could prove to be the Achilles' heel of the "Name Your Price" model.

Picking an arbitrary minimum price was my mistake, so taking a more systematic approach to choosing a minimum price could be the answer. Here's a graph showing the Percent Cost of Sales through PayPal by Purchase Price:

It might be hard to see, so here are some interesting numbers:
The current minimum price of $1.28 has a whopping 26% COS, while
$2 is down to 18% COS,
$3 gives a 13% COS, which is half of $1.28 COS, and finally
$4.25 breaks below 10% COS.

Other interesting points are $5 at 9% COS and the suggested price of $7.99 has a 6.75% COS.

It comes down to choosing an acceptable COS for your own products. Personally, now that I've seen the numbers I think moving my minimum price up to $3 is reasonable and prudent. Presenting customer with this information could be an effective justification, as I'm sure they would rather see a higher percentage of their money going to the developer rather than the payment processor.

A note on choosing payment processors: I currently offer PayPal and Google Checkout, the distribution of payments is 1/3 Google Checkout to 2/3 PayPal. It's a good idea to offer both services to maximize the countries that you can accept payments from.

* PayPal's processing fees are 2.9% of total + $0.30 per transaction. Google Checkout is a little cheaper at 2% of total + $0.20 per transaction, however, Google Checkout is changing their pricing structure in May to match that of PayPal.

So far, the feedback on "Name Your Price" from customers has been sparse, but positive. The rumblings around the web seem to show general bafflement and sometimes misunderstanding of the concept, but I’ll save that for another post...

Overall, I'm pretty happy with the results. The most apparent downside of "Name Your Price" is the high cost of sales associated with low priced orders; picking a well informed minimum price is a good way to mitigate this downside.

Determine an acceptable cost of sales for your product then pick a minimum and suggested price to help meet that goal.

For me, SizeUp and "Name Your Price" isn't a "Get Rich Quick" plan, sales have certainly slowed since day one, but eventually I hope to make a living from a handful of such apps. For now, it's interesting enough to push forward to see where this path goes.

Care to comment? Discussions are happening over here.

Unfortunately it’s not possible to pick a single price that will satisfy all customers while providing a sustainable income to a developer, but it would seem that most developers will err on the side of overpriced when faced with this decision.

The price of software is a means by which the developer communicates to you, the potential customer, roughly how much time and effort went into designing, implementing, testing and eventually supporting the software. When you purchase a piece of software, even begrudgingly, you are communicating back to the developer that the price asked is fair given the amount of utility or pleasure you get from the software.

But if you don’t feel the price is fair based on your usage, you are left with few options. Commonly, the end result is you don’t purchase the software and the developer is completely unaware that they lost a sale. In this case, neither party benefits.

Developers should continue to price the software based on the amount of time, effort, and resources put into developing, maintaining, and supporting it, but the customer should also be in a position to tell the developer what they are willing (or able) to pay for the software.

Irradiated Software is running with this (perhaps misguided) idea, so stay tuned for the introduction of our next product SizeUp where you can “Name Your Price” (within reason).

This is the way I personally would like to pay for software.  It's not an issue of quality: though I might not get $999 worth of Adobe Photoshop, others certainly do.  It's also not an issue of price: even a $0.99 iPhone app can be disappointing.  It comes down to feeling like you get more out of the software than you paid, while not underpaying for it either.

"Name Your Price" also addresses alternative payment schemes.  "Pay by usage" and subscription-based applications are not typically in the customers' best interests. These pricing schemes, though designed to look appealing (e.g. low monthly cost), often incur a greater expense over time and overcharge for additional "add-ons" or hidden fees.

Perhaps this article is a gross oversimplification of the problem at hand, but the bottom line is, I don’t want anyone to be without one of my products simply due to a (perceived) prohibitive price.

I think we can meet each other half way with “Name Your Price”...

TwoUp, as indicated by its name, is designed to fulfill a very simple purpose: make it easy to put two windows side by side. If these new features were added to TwoUp, the name wouldn’t make sense anymore, but more seriously, creating SizeUp allows us to head in a new direction with our development without sacrificing the ease of use and simplicity of TwoUp.

TwoUp will always remain free as a labor of love, but to reflect the amount of time, effort, and resources put into developing SizeUp, we are attaching a price tag which allows us to continue developing new ideas and helps defray the cost of support.