Opening the Kimono on Pricing

{3:10 minutes to read} When I was living in Japan in my mid-twenties, I had an Australian friend who supplemented his income with frequent trips smuggling photography equipment to and from Hong Kong. He said it was a great side business, but not for people like me whose visible discomfort with duplicity would reveal all at customs.

I’ve never been a good liar.

Early in my career I thought that bad liars like me could never be successful in marketing or sales. However, it turned out that I was adept at making sales when I believed in the product or service that I was selling – as long as I had nothing to hide.

Opening the Kimono on Pricing by Michael Bendit

Now that I run my own business selling software development services, I have the luxury of choosing the teams I represent and being completely open and honest about their amazing offerings, including how they price their services.

My last blog article focused on the frighteningly large range of quotes that different software vendors might submit a bid for the same project – from the freelancer who low balls the job at $5,000 to the high-cost, premium-brand agency with the $1 million bid.

I also promised to “open the kimono” on how my teams price their services, based on the real economics of the custom software development business.

My teams usually submit fixed-price bids for projects with a well-defined scope.

Our quotes are determined by these four factors: 
  •  Hourly cost of our development resources, which make up 90% of the cost for any professional service business.
  • An estimated number of hours required of each type of resource.
  • The risk associated with underestimating the required hours.
  • Markup required to cover overhead and profit.

 

To compete successfully in the software development business, my teams have to manage all four of these factors:
  • Hiring, training and retaining the most skilled resources for the job from around the world, which is why more than 70% of our work is developed offshore.
  • Using the best methodologies for estimating development, testing and project management hours while continually honing our estimating skills.
  • Mitigating estimation risk by leveraging proven platforms and investing in proofs of concept.
  • Using reasonable and competitive markups to cover the cost of doing business.

 

Ask your software development team how they price their services, and be wary of any team that isn’t willing to open their kimono on pricing.

How does your software development team set their prices?

Michael Bendit

 

Michael Bendit
Managing Director
Software Development Resources Inc.
888-447-1591
111 Eighth Avenue,
Suite 1500
New York, NY 10011
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