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.