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Consulting fees

Hi people.

I founded my company to launch a particular software product. Now, through the same channel I landed this product idea, I have found a custom application developpment contract.

The only problem is, as I never did any contracting work, I have no idea what to ask for. Right now, my contact for this contract is asking me what would be my cost.

I don't want to get greedy, as this is my first contract and through no fault of my own, my contact knows that. But I don't want to get fleeced either.

I have heard that a good idea for pricing would be to divide my projected salary for a year and divide it by a 100, and that would be my hourly rate.

The fact is that the company this application is for is a small niche company, but my contact tells me that this would be a definite competitive advantage for them as no direct competitor has that kind of application.

Basically, I'm asking for advice on pricing.
Sorry for the long post.
Stéphane Riopel Send private email
Thursday, July 13, 2006
 
 
I mean divide it by a 1000, not a 100.

... *always reread what you write*
Stéphane Riopel Send private email
Thursday, July 13, 2006
 
 
Yes, that rule of thumb is a good starting point.
Art Wilkins
Thursday, July 13, 2006
 
 
Oh, if this is a long term contract, like they are asking you to do more than 9 months full time and that is guaranteed in the contract, your rate can come down to like 1.5 instead of 2, but I wouldn't go below that. Anything short term though, charge the higher rate.
Art Wilkins
Thursday, July 13, 2006
 
 
Hi Stéphane,

This question comes up frequently and most people tend to have differing opinions on how to derive a consulting rate.

I try to aim for at least twice what I'd get in an equivalent full-time position and whittle that down to an hourly or daily rate.

Alternatively, depending on how confident you feel, you can try quoting for the project particularly if you have a large code and skill base to draw upon.

"I don't want to get greedy"
Why not? As much as you can. Investigate what alternatives the client has. Ring up a few recruitment firms pretending to be a prospective client wanting the services in question. What would they charge? (I used to get my mother in law to do this).

Remember also that your rate will need to include variables that you don't consider as a full-timer.

- Insurance
  This includes public liability, health,
  income protection & professional indemnity.

- Working Year.
  You wont be working 52 weeks in the year. You'll need
  to account for public holidays, holidays & sick leave.
 
- Materials
  You'll need to be self-sufficient in anything your
  employer used to provide.

All the best
Marcus from Melbourne
Thursday, July 13, 2006
 
 
"I try to aim for at least twice what I'd get in an equivalent full-time position and whittle that down to an hourly or daily rate."

Eh...thats not very much when you think about it.  After self employment taxes, paying ALL of your own insurance, etc...you would more than likely end up making far less than you would working for someone else.
Anon->Not Fired Send private email
Thursday, July 13, 2006
 
 
Charge the going rate.  The going rate is real easy to figure out too.  And depending on the dynamics: long term or short term contract, doing any networking along with the software?, data migration?, implementing databases?, installing operating system on servers for client server?

I would tier the quote.  And use words with your client like "the going rate for this type of work is $X/hour" since they know this is your first gig.
~Eric
Thursday, July 13, 2006
 
 
and don't base your rate on some silly formula -- that's plain bad advise.

The going rate in each state for software developer/engineer is published on places like salary.com. 

Here in Michigan my hourly, non-block or short term engagement, rates are:

Network consulting: $125/hour
Custom Software Dev: $90/hour

If I get a long term contract (anything over 2 months working 40 hours/week) I'll start dropping my rates by $5, $10 or more per hour.

My client site services deals are situations where companies have hired my team with 1 year contracts; usually renewed each year.  In engagements like this, my hourly billed rate ranges between $55 and $85 per hour with high end being very specialized things like Cray and AS400 programming work.
~Eric
Thursday, July 13, 2006
 
 
>> Network consulting: $125/hour
>> Custom Software Dev: $90/hour

The only way this could be right is if you and I have a very different definition of "Custom Software Dev". In Our domain that means a university degree and 5+ years of experience; way more than a network tech.

That's the problem I suspect the OP will have as well - if he's talking a niche product that implies specialized domain knowledge; there is no going rate for that type of work. People are always afraid of leaving money on the table -  figure out your opportunity cost and that's your price. In the long-term $5 an hour is nothing, especially if you're just getting started.
Blah
Thursday, July 13, 2006
 
 
$5 at hour for specialized work? He should be lucky to get $2 an hour! Why, back in my day, people would be happy to get a tin of water and a stale piece of bread in return for 18 hours af backbreaking work. You kids today have it EASY!
Art Wilkins
Thursday, July 13, 2006
 
 
$5/hour difference, I presume?
PHDude Send private email
Thursday, July 13, 2006
 
 
My rule of thumb is to assume that you will bill approx. 220 days per year on a full-time assignment.  This is calculated as:

  365 
- 104  (weekends)
-  10  (holidays)
-  20  (4 wks vacation)
-  10  (sick/personal days)
=====
  221

Looking at it another way, that is approx. 2000 hrs. (220 * 9 = 1980).

You then need to come up with a daily/hourly rate that "makes you whole".  You need to factor in the cost of benefits (health ins., life ins., IRA contributions, etc.).  You also need to factor in that you will be paying the employer's portion of unemployment and FICA tax.  Another cost is general liability insurance, and perhaps "errors & ommissions".

You may also need/want to factor in a premium to account for unplanned downtime, and/or to allow you to take time to market yourself (for the next gig).

You probably want to get a decent account to help you set this up, esp. if you need to form a corp./LLC to do business.

There used to be good resources for all this at www.realrates.com (haven't checked in a while, though).
BillT Send private email
Thursday, July 13, 2006
 
 
Link: www.realrates.com
BillT Send private email
Thursday, July 13, 2006
 
 
BillT Send private email
Thursday, July 13, 2006
 
 
Think carefully on this - if you already have a product, the contracting will take time away from the next product.

You are then at high risk for the bane of uISVs, giving up all your development time on your product for customizations.
dot for this one
Friday, July 14, 2006
 
 
One more thought - desired salary / 1000 is a floor. That is, if you can't get that as an hourly rate, you are probably getting a bad deal.

If you are employed by an agency, you can cut it down a bit.

Examples: Your salary is $90K. You should get $90/Hour.

For an agency job, you can probably justify $60 an hour.
dot for this one
Friday, July 14, 2006
 
 

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