The best way for Web & Mobile Dev company to charge their services?
I have a Web & App Development company and I was wondering what is the best way to charge my services?
For example this company: infinum.co ... They have 35 employees. That means that they have to pay their workers more than $70k per month. That would mean 7 projects per month, each charged $10k. Thats not more likely. They cannot charge $10k for every website and they certainly dont have more than 7 project per month.
Im missing something here....
I think clients prefer a fixed cost over hourly charges.
I have decided my per hour charges. For every project I inspect it and decides the time required to develop and then depending upon no. of hours required to do the job I provide my costing which is basically fixed cost for my client. Then no matter what happens I complete the job for the decided cost. If there is any addition in the functionality then I let him know regarding the increase in cost. So I have to make sure there is work for every resource I have for all the days they are working....
The obvious answer is that they are charging much more than $10,000 per client, and/or they are not paying their employees $2,000/mo each.
I would also expect that many of these projects listed on their website had budgets larger than $10,000.
Anyway, I typically charge my clients a fee to cover complete planning and blueprinting for their project before delivering a complete bid for the project.
Once complete blueprints have been designed for an app or website, THEN we can give a firm bid for the work.
I break large projects into 5-10 or more steps with payment for the upcoming step made at the start of each step, and 5-10% of the total project value paid upon completion.
Any change orders during or after the project is completed are billed additionally.
It may seem a little tedious, but breaking projects down into the KNOWABLE elements ahead of time, and billing for work on a piece-by-piece basis has saved me many headaches and keeps my customers happy with the delivered work (and willing to pay more for additional work as needed).
There are two different questions in the question - what is the best way for YOU to charge, and what is this other company's cost structure? Those are two completely separate issues. Seeking a benchmark if you really have no idea what a competitive price for your services would be only works if you know the basis for the other company's costs, and as a lot of other posters have said, there isn't enough there to know that. So you're back to the normal process- figure out what a fair price would be and charge that.
You can charge on a cost basis (a hourly rate that recovers your actual costs plus overhead and profit), in which case you are counting on having lower rates than your competitors, or you can offer a fixed price (having assumed the hours, margins and risks). If you don't seem to be able to win any work that way, try talking to the companies who let the work out and see if they can give you some clues as to your competitiveness. If you just can't get there then you'll need to figure out how to reduce your costs or refine your delivery process.
The best way is to analyze what the market charges for the same services and establish your prices within that range. Spend some time on your quotation template to show the customer the value of your services for the price offered and emphasize the part of your service that makes you stand out above your competitors.
Size your business to the work coming in. Try to get some developers to work on contract at the beginning while you are building your business and reinvest your revenue into your business so that you can build it with some FTE's. It is important to know your fixed and variable costs so you can determine how many projects you need per month as a target for your sales team and the number of developers you need per month to execute the work. Good luck with your planning and strategy.
You have to do a two prong approach to work this out.
You are basically a services company that is selling the service of individual people. So you have a group of people who earn income and some others who do not. The income earners needs to cover their own costs plus the costs of the others plus the other costs of running a business plus produce a profit.
First, you look at what you want ...
The cost of a worker can go beyond the actual salary. There are on costs such as company contributions to retirement funds, health care and so on. So when you look at the cost of the worker you need to look at their full cost.
Then the business has operating costs which can include rent, utilities, advertising etc. Plus they include the salary+on costs of any non-income producing worker e.g. manager, IT support, admin and so on.
Together these are your operational costs.
Break Even Income = cost of workers (salaries + oncosts) + overheads.
Finally people only work "x" days per year. Other days are public holidays, vacation, sick leave. So you have to set the number of income producing days e.g. 220.
The you have to factor in people don't work 8 billable hours per day. so they are often only 90% billable.
Then there is gross margin. You could set it at 50%.
You need to factor this all into a formula to work out what the rate for each person to make sure you cover your operational costs + margin.
Different skill sets have different rates e.g. a PM might earn $250 an hour. A junior design might be billable at $100 an hour.
I'm not going to do the formulas for you. It takes a complex spreadsheet.
Second, you look at what you can get ...
You need to compare the rates you worked out to market and adjust to remain competitive. Some you can increase, some you can decrease.
Finally it depends on how you bid your services how much you charge for a project. T&M is just the rates. Fixed Price includes a risk factor
It would be nice if product and service costs were the driver for pricing but it isn't. Market need, value and what customer's are willing to pay are the top pricing indicators. Business costs are calculated against needed revenue for profit but if you are basing your pricing on your costs, yes, you are missing something.
Infinum seems to be a mobile app development company and they do high end apps. They could easily be pulling $5-20k per app plus anywhere from $500 to $2k+ per month for updates and content (RSS etc.)
Play around with the math, imaging they are bringing in 5 $5k projects per month and have 30-40+ companies on maintenance.
First of all, forget about what others are doing. Do what is good for you. Charge by doing a specific quote per job / per client, and charge an up front fee to cover your expenses at the very least. If the client is serious, the down stroke won't bother them. Get paid more than the amount of work you have done on a weekly basis until the job is complete. If they bail or flake at any time in the process you are covered. That is the way I do it and I NEVER worry about what a competitor is doing in billing practice or anything else. My 2 cents.
Antonio, every company needs to make a profit.
Otherwise you will not be their next year.
To make a profit you need to understand your true costs.
Fixed costs + Variable costs, not forgetting all the insurance, equipment cost and maintenance, Superannuation, and the one people often forget TAX. and PROFIT. Once you have that you can work out your true costs from which you can calculate the minimum cost / price per project based on your current history.
Without a very good understanding about your cost side you may find your self working flat out and still going broke.
The next aspect is to review the efficiency's of the employees. and the break even points. For instance what would happen if you increased staff levels to 40. Do I put my developers on contract per project. Do I need this level of experience for every aspect of the project.. What ever you do on the bottom line in terms of income of time savings will amount to additional workload hence cheaper output cost, and possibility an increase in throughput with equates to more projects per month.
You are focusing on one of the more important questions of which the answer most often makes or the lack thereof breaks a company. There is not canned answer here. Once needs to looks at your financials, understand your fixed and variable costs and then go from thee.
Antonio, I agree that $10,000 is a lot of money to spend for a website. But where I am located that is close to the minimum one would expect to pay.
There are a lot of other factors you need to take into account when you set your pricing i.e. support personnel, rent, taxes, utilities. I would take an average month of expenses (have a chat with your bookkeeper) and determine what you are incurring on an hourly basis (you will be surprised at the number) and use that as a basis. I would then look at just how much time is spent on an average project and cost it out (again get help from your bookkeeper).
When you bid on a project use those figures (add in a modest profit) and you shouldn't go wrong. Don't forget the change orders .... I've always billed separately for those.
Assuming the company can not perform or get 7 projects only charging $10k each so the total company income $70k , their expenses more than that , Its not logic , or its not non profit organization , company management change their work strategy by targeting 20 projects instead of 7 .
They should charge higher prices for their services with higher quality , Since its Web & Mobile company then the company shall study How to reduce the company operation Cost , ,Also the company can invest the Web & Mobile for additional income in many ways .
Having run a web development company myself, I can completely understand where the question is coming from. The company I worked for had about 35 developers also. The trick is that they were working in Bangladesh where the wages are much lower than what you'd probably pay in an EU country like Croatia.
Start up companies in this industry, especially with production bases in developed countries, have a tough time getting going. Many of the customers, whom they end up taking, are customers that only want to pay the minimum amounts possible. Unfortunately, it's those customers that tend to be the ones that stretch your service for everything they can.
When companies establish good reputations and their brand, they are able to start bringing in the bigger accounts. The company I worked for was just breaking into this next level. We serviced the development and support for a website of a major television network show, the Biggest Loser. We were also starting to bring in big accounts, like Disney, through ad agencies. Those customers, while demanding high quality, paid without fail (and at higher rates).
So here it is. The best way to charge for services is by establishing an FTE contract with your client. An FTE, or Full Time Equivalent, works like an extension of your clients' teams. Essentially, they pay for 40 hours of work per month for each FTE they contract for. The great thing is that you don't have to have just one particular skill set assigned to the customer. With this method, your employees can specialize in their best skills and trade off working for the FTE-contracted client based on the client's current needs.
Of course, you can adjust this for various clients that may not quite need full time; you give these clients half FTEs (at slightly higher rates). We used to do 1.5 FTEs, half FTEs, and so on depending on the clients' needs. As the clients developed, they often would ask for more FTEs. You're protected from going down based on your contract, but the sky is the limit going up.
Using the FTE method ensures that you know exactly how much labor you will need each month. There is no guessing about how much out-of-scope labor might occur on your project-based work, which requires renegotiating on so on. Likewise, an hourly rate is tough to forecast also. While it offers flexibility for your customer, it leaves the development company guessing as to what the labor will be next month (or even this month).
I hope that helps!
Antonio, knowing how many employees a company has is not necessarily an indication of where those employees are working. How many in web dev? sales? admin? It also depends on what kinds of projects they are working on. If they do a lot of Wordpress sites, the revenue is not going to be very much. If they do high end sql data driven sites with lots of custom code, it's a whole different story.
It is also helpful to know how much support staff the company has and if they offer ongoing servies in a recurring billing model. Often a big part of the company will be devoted to supporting the software and websites they have build for their clients. Of course support is usually billed an an annual support contract and is accounted for on a hourly basis. This can be a big revenue generator for the firm.
In the past I have had great success going to the trade association related to the industry I am working in. They have Operating Ratio Studies that breakout performance across different areas, sales, expenses, labor, etc. These studies can be extremely helpful in understanding how business is done in a particular area.
I would say it is very realistic. I also think there is much more than just employees salary they are covering. Thirty-five employees also includes employee insurance, benefits, office space, technology, etc. Those expenses add up rather quickly.
It is fairly common for large-scale website projects, pricing can start at $10,000 and go up from there. Plus on-going maintenance for updates, revisions, changing of graphics, web-sliders, etc., etc.
When I first started my firm, I spent hours researching competitors. Trying to "figure out" how they could do what they do and make what they do. I would say to myself, "how do they afford to do all of that?".
Here is how I finally figured out what they were doing, I actually stopped comparing and ACTUALLY STARTED DOING IT MYSELF :) It is amazing what you can accomplish when you stop the comparison game! Keeping your budget on target, no wasteful spending, setting realistic goals and working hard for your clients. It makes all the difference!
Best of luck in your entrepreneur adventure!