{3:10 minutes to read} Fear is in the air: Halloween is rapidly approaching. Although ghoulish rubber masks of Frankenstein or Freddie Krueger are frightening to children, most adults remain unfazed.
Yet, something as mundane as the cost of a software development project can strike terror in the eyes of a buyer, particularly a small business or startup company that isn’t flushed with cash.
Recently, we submitted a quote of $40,000 to a client for the development of a fairly complex, online gift registry. Apparently, our bid was somewhere in the middle. The range was frighteningly wide: $5,000 on the low end to just shy of $1 million on the high end.
While I’m sure that the prospective buyer was shocked by that outrageously high bid, he should have been equally wary of the low one.
If you take a look at my LinkedIn profile, you will see that in addition to selling software development services, I do pricing strategy consulting with Abbey Road Associates. In my experience, software development vendors price their services strategically.
The vendor with the $1 million bid is probably a full-service digital marketing agency that already has a well-known brand name as a premium provider, or is trying to establish itself in that niche. It most likely has a large staff in the hub of New York City, with a cost basis much higher than its competition. Its $1 million quote was probably intended to attract high-flying customers who see value in paying a premium associated with the vendor’s brand and “scare away” the value-conscious prospects.
At $5,000, the low-end bidder probably does not fully grasp the complexity of the project. Their entire development team is most likely situated in a low-cost corner of the world. And, assuming they are not totally naïve, I would have to guess that this bidder is “low-balling” to get a foot in the door with a client who might view them as a “low-risk bargain.” Inevitably, the price will rise as the project progresses and the vendor disingenuously claims that the scope of the project is significantly expanding. As the client becomes exasperated with delays and cost overruns, they may decide to start over with a more reliable vendor. When this happens they will realize that their initial choice has cost them both time and money.
Stay tuned.
In our next post, we’ll open the kimono on how Software Development Resources prices its projects. In the meantime, something to think about: How does the quoted price of a project affect which vendor you select?
Michael Bendit
Managing Director
Software Development Resources Inc.
888-447-1591
1825 Madison Avenue, Suite 9E
New York, NY 10035
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