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Doug Nebeker ("Doug")
I hope I'm not committing some major faux pas by asking about pricing because I could really use some advice here.
Do any of you have experience with B2B software for really big organizations? Government in particular?
I have an MS Office add-in I've developed that I sell to companies. The core part of it is developed, but it typically needs to be further customized for each client. So my pricing is 2 part - a licensing fee that averages $100 per user for the part that's developed, and then either a flat or hourly fee for any additional customization I do, depending on the client's preference.
My typical client has anywhere from 5 to 100 employees.
I was just asked for "enterprise" pricing for a government agency that has thousands of employees.
I don't know yet if they will want my software package or to just have me develop exactly what they ask for, but even if it's a matter of programming just what they ask for -- I know I'll have a lot of code already developed that I can use.
I have no idea where to begin with pricing for this size or an organization, and no idea what my competition might be doing.
How would you approach pricing? If it's licensing, at what number of licenses do you have an "enterprise" where they're not paying more for each user?
If it's all custom developing for their specs, would you go in hourly? That seems to be their expectation, but what about all the procedures I've spent years developing that I can use?
Am I over thinking this? On one hand, I don't want to get greedy and charge too much, but on the other hand, if thousands of people are going to benefit from my efforts, isn't it probably worth more than my usual hourly rate. (And won't it probably have a lot more headaches than my usual client.)
Thanks for any input.
There's something missing, who contacted you, a procurement agent/manager for the government agency or a prime contractor? I realize you may not want to divulge many details, but it makes a big difference if your contract is with an IT services provider who already has a contract with this government agency, or if you need to enter into a new contract between yourself and the government agency.
The contact is someone who is employed by the govt. department looking for the assistance. At this point they were just asking preliminary pricing for a few days consultation on how to get going with their project. It sounds like they're planning to do the project management in house.
The inquiry seemed surprisingly casual to me. No RFP, just "what would a few days of your time cost for an initial consultation?"
After the initial consultation is where the real work - and my pricing dilemma would come in to play.
It seems like your main objective during the initial consultation stage will be to observe and ask questions that will allow you to figure out the pricing.
Also, your contact should be able to help with background info on what they are likely to buy, for what price, based on how thing currently run. If not themselves, they'll likely know someone who does know.
Just go with the flow and see where it leads. In my case, working for the government, on a military project, turned out to be really interesting and challenging, even though it kind of happened by accident (I was just in the right place at the right time and got asked to participate).
Monday, June 24, 2013
I would charge them your standard per user rate with a volume discount:
Then charge an hourly rate for any additional work on top of that.
And don't underestimate how much red tape and form filling might be involved:
So charge a premium rate.
Monday, June 24, 2013
"don't underestimate how much red tape and form filling might be involved"
"At this point they were just asking preliminary pricing for a few days consultation"
Quote an hourly rate consistent with your other business. Follow Scorpio's advice and ask questions, but don't commit to any pricing for further work until you have enough details to complete the most detailed RFP you've ever done. And be prepared to resubmit your RFP at least once (probably 3 or 4 times) to allow for altered requirements.
If you quote above market rates (even for the initial consultation), you won't get a shot. But you aren't expected to throw in freebies either, and try to fit in as much prep work for any RFP's into your billable consulting time as you can ethically justify.
Thanks so much for the advice and links. The "Why a hammer costs $5,000" one scared me. :-)
This part is pretty much what I suspected:
"... Suddenly the only vendors willing to do all the paperwork charge crazy expensive prices for everything because it costs them an arm and a leg just to get in. And this is with no promises of any sales..."
I have done some work for smaller local government agencies a couple times and it was definitely more life-draining paperwork than the private sector and I had to buy insurance I didn't want or need to get the project. But it was good business to have once we got rolling.
In the end I just accepted what they wanted the contracts to say and hoped for the best. Everything worked out. So far.
I find the amount of red tape selling to local and national governments varies a lot from one sale to the next (even when it is the same government). It shouldn't be too bad if you are selling relatively low price packaged software. But be prepared to jump through some beaurocratic hoops.
Tuesday, June 25, 2013
I had found that the level of bureaucracy, terms and conditions, paperwork, and new things you must comply with forever throughout your business were so extreme with government agencies that I ended up refusing to sell direct to them. Let them go through a reseller and be a normal customer that way.
If I absolutely had to do it though, I have considered setting up a distinction between personal licenses and institutional ones and charging 100 times more (at the least) for institutional ones. So instead of $200 per license, it would be $20,000.
By the way, "So instead of $200 per license, it would be $20,000." is not unreasonable, that's how it works in real life. Lots of software out there you can find a great version that is sold off the shelf for $50-$300 a copy, and there's some other company selling the same sort of software for $20,000 to $1M per license, but it comes with multiple air trips out to the site to make personal sales visits and schmooze up/bribe the bureaucrats.
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