This note is about pricing projects, especially software projects. Related to basic concepts of pricing.
Hourly rate is always better than fixed price. Problem is that most organizations are so stiff that they cannot do it that way. Quarterly budgets and check-ups get in the way.
Hourly rate is financially fairer to both sides. As time is money, fixed price means also fixed time. When you have fixed time, you must plan the whole project at the start. Tracking the development is hard but making good long term estimates is fundamentally impossible. The development time rarely hits to the expected time span.
Hourly rate projects result in a better quality product. Fixed priced project leads to making important decisions at the start of the project that would be better made when the problem is truly clear.
Hourly rate projects are faster to complete. You can start working on the project sooner as you do not have to estimate the whole project from start to finish.
Offer an optional way to get the project with a fixed price. You have to add extra costs to outweigh the uncertainty of estimation.
# To calculate price of a software project, taxes not included.
Estimated Coding Hours Required * 2 * Hourly Rate
# Development hourly rate is around 80€ in Turku, Finland (2013).
# To calculate the best hourly rate in your location:
- Estimate or reverse engineer hourly rates of all local providers.
- Take 5 that match you or your company the most. Age, experience, portfolio.
- Drop the highest and lower rate.
- Average the remaining 3 rates and reduce the result by 10%.
- After you get a few projects with this rate, start raising the hourly rate
by 20% per project. You should be hearing complaints you are expensive,
but they still hire you.
Always offer customer to buy additional development from elsewhere. Give your customers at least partial rights to modify the product when the project has ended. Being a dick may create you money but it will not carry you far.