Pricing bespoke software

[JDX_John]

This might be a bit of a "how long is a piece of string" question, but for anyone here who develops software or something comparable, how would you price a project - both your general approach and real numbers would be welcome. I'm targeting £multi-million medical companies for fairly specialist software.

Let's have a scenario to work off - you've estimated a project will require two developers for six months and you need to quote for this. Questions like:

- What is a typical amount to bill for a day's work? I could be paying each developer anywhere from £15k-50k depending if they are salaried or contractors or outsourced but the fact the market rate for contractors can be around £400/day suggests companies paying this are making a profit off even on top of that. But it just seems very expensive to be working on £500-per-person-per-day.

- How much to set aside on legal?

- etc

If I go the route of using the upper bound on what my developers might cost me if I hired contractors at £400/day (this is what I charge when I work as a contractor), and adding 25%, I get a figure of £500/day * 2 people * 6 months (120 working days) = £120k. I've no idea if that's a lot. It sort of seems like it, but then the company is supposed to have profit after paying my salary and overheads, as well as the developers' salaries.

Real calculations very welcome (feel free to PM if you prefer) or general advice on building a quote.

Thankyou.

 

[Paul Norman]

Pricing bespoke software is difficult as you say. I have some considerable knowledge of it. The biggest mistake made is to come up with pricing that means you run out of cash!

Now, bespoke software is not going to be cheap, mostly. I do get approached by people wanting 'cheap bespoke software'. Like a discounted Ferrari, it might not be low enough in price still, and might not be the wisest purchase for the customer!

First, is the definition. If it is completely bespoke, and will be unique to the one client, they are going to have to pay enough to fully recover development time, including contingency, snagging, and roll out time. And the minimum daily recovery rate is going to be in the region of £350 per day. With stage payments. So a 3 month project is going to be about £21k to £25k, assuming just one developer on the case.

More tricky is if you believe you might resell the software to other businesses in the vertical stream. You then have to decide how much, if any, of the development cost you will absorb as investment, and recover by selling on to further businesses. That is going to require a good knowledge of the vertical stream.

 

[JDX_John]

Good points Paul. While we definitely expect to build up our technology platform, or our "tool box" I prefer to work on the basis it is fully bespoke. i.e. if we get to re-use that's a bonus.

 

[garyk]

I typically break a project down into much smaller functional chunks, estimate the days required for each functional part and add about 40% contingency. Then I cost the days based on approx. £450 a day to get an overall price.

I typically offer an MVP option, i.e. the minimum feature set for a reduced price as it can form the basis of the overall solution and can be more agreeable for the client plus it avoids the waterfall approach of delivering a system that doesn't meet their requirements.

I would have to disagree with Paul regarding discounting against further sales. I did this as my first project when I was very green 20 years ago and basically the client ended up with a dirt cheap system and I was out of pocket. You can turn this on its head. I would only ever work at full price but if a client recognises the commercial potential then offer them a cut on any sales *they* make. If you just offer a cheap system they have what they want and have no incentive to go and sell it. That leaves you having to invest time and money into marketing it.

 

[JDX_John]

I didn't take it as meaning cut them a cheap deal, but if you recognise 50% of the work will be used in 100% of future projects, you might factor this in - core technology rather than stuff you'd be lucky to re-use. If you're selling your company as having a platform from which to develop new products, and you haven't yet built that platform, I think his argument makes sense even though I'd rather not do that if I can avoid it!

 

[browse4]

£400 per person per day seems a good guide - Always look at competitor prices too

 

[Paul Norman]

I didn't take it as meaning cut them a cheap deal, but if you recognise 50% of the work will be used in 100% of future projects, you might factor this in - core technology rather than stuff you'd be lucky to re-use. If you're selling your company as having a platform from which to develop new products, and you haven't yet built that platform, I think his argument makes sense even though I'd rather not do that if I can avoid it!

That is exactly what I meant. And the caution of Gary is not wrong - it is easy to believe we are about to launch the next world dominant product when marketing a new software product that has only one current user is very hard indeed.

 

[NickGrogan]

Surely the question of price depends on the value that you're offering the customer, not the cost of your developers.

If you hire contractors through a recruitment company, and the developers are getting £400, you will be paying more than £500, so you need to include that as well.

Software which will make/save the client £100,000 annually is worth less than software that will make/save £1,000,000.

real world example:

I used to work for a software dev company, (around 2001), we developed a b2b reverse auction platform (they were a new idea back then) for a specialist client. The client made millions from it, we charged them £150,000 + some extras when the changed the spec after the project was completed. Most of the work was done offshore, costs were in the low £10,000s.

Client was happy, I was happy, developers were happy. If we'd tried to sell for £30-40k they would have gone elsewhere.