I then give the client a quote for the greater of X and Y. Then, I guess how much it is worth to the client and I divide that by 10 to come up with Y. So, when a talk to a client about a new project, I first guess at how many hours I think it will take me, and I multiply that by $200 to come up with X. There are two numbers that you need to determine when bidding a value priced project: the cost to you and the value to them. Trying to reframe all of your experience from a value based perspective (“how would I have done all these deals with value pricing”) before internalizing the approach is recipe for failure. Try it on a single project with a new customer first. And, it’s HARD to convert existing customers. You don’t have to convert to value based all at once. I believe that this shift will make you both a better developer and a better service provider. You need to feel the internal shift - the loss of the safety net. To really understand the difference between value pricing and hourly billing, I think you need to do at least one value priced project yourself. Sure my profit margin is decreased, but doesn’t making $100/hr instead of $200/hr sound a lot better than arguing with a customer for an hour over a 30 minute hours entry? On the other hand, if I underestimate a value priced project, my punishment is. IOW, a bunch of administrative bs and fights with the customer. Specifically, if I underestimate an hourly project, my punishment is angry phone calls, endless review of hours entries, running reports and billing statements. You can underestimate just as easily with value priced project as you can with an hourly project. Several interesting points came up during the call that I thought would be nice to share. We are planning to work on a number of issues, but his primary interest is converting his consulting business from an hourly billing model to a value pricing model. The other day, I was having an initial “get to know you” phone call with a new coaching student. Register now for Email365 » 7 Thoughts on Value Pricing for Software Projects 7 Thoughts On Value Pricing For Software Projects | Jonathan Stark
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