pricing software development projects as a freelancer

Pricing Development ProjectsGlenn Stovall

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3 Components: Cost, Value, Price

Cost: Minimum you must make on a job.

Cost of time + cost of materials + customer accquisition cost

Value: What the customer receives

—Value is subjective. —More art than science.

Price: The Amount of Money that Changes Hands

Cost vs. Value vs. Price

—Price < Cost : Developer goes broke. !—Price = Cost : Developer breaks even. "—Price = Value: Client Breaks even. "—Price > Value: Client goes broke. #

Best Case ScenarioCost < Price < Value : Win-win range !!

Making Profit

—Price - Cost = Profit—By providing more value, you can charge a higher

price. —Estimate cost, estimate value, set price between

the two. —Optimize towards profit.

Estimating Cost

—Think in ranges.—Reduce uncertainty.

Common Estimation Stumbling Blocks

—Mythical Man Month—Negative Network Effect (aka I-285 Syndrome) —Death Marches—Lack of Margin

Items to consider

—Development time—Meetings—Communication—Documentation—Launching—Revisions

Estimate Value

—Tangible benefits—Intangible benefits—Reduction of Risk

Examples of Value

—Increased revenue—Decreased cost—Reduction in workload—Increased opportunity—Competitive advantage—Emotional Impact—Risk mitigation

Worthless Rigmarole

—Your Idea for the “Next Big Thing.”—Which programming language you use. —The number of hours spent on a project. —The number of features your app has. —The extendability of your code.(sometimes)—Using the most 'cutting edge' technology. —Building a custom solution instead of using

something 'off-the-shelf'.

Ways to be Worth More

—Reliability of your code. —Good communication. —Speed of delivery. —Force multipliers. —Education (Documentation, Training, Consulting) —Coding isn't the only work that produces value.

Risk is the #1 Factor in Value & Pricing You can control.

The lower the risk of your offer, the higher your value.

Examples of Risk Reduction

—Guaranteed delivery time. —Guaranteed price. —Reputation / Pedigree.—Warranty. —Money back guarantee.

Thought ExpierimentThe Business Wizard

How much would you pay a wizard too...Cast a spell that instantly makes your business $100,000?

How much would you pay a wizard too...Cast a spell that makes your business $100,000 over the next 12 months?

How much would you pay a wizard too...Cast a spell that has a 10% chance to make your business $1,000,000?

Pricing StructuresHourly vs. Fixed?

Pricing Structures

—Hourly—Daily / Weekly—Fixed / Project—Monthly Retainer—Productized Consulting

Hourly

—Client takes on all risk (lower value). —Price anchored to cost (lower end).

Fixed

—Developer takes on all risk (higher value).—Price anchored to value (higher end).

Others:

Common Stumbling Blocks

—Spec Work.—Fixed rates based on cost not value.—Not talking about money.—Offering Discounts.

Discounts You Shouldn't Give

—Friends and Family Rate.—Just Getting Started Rate.—Charity Rate.—Pay your Dues Rate.

Setting Your Price

—Understand cost.—Understand value.—Understand constraints.—Understand risk.