INTERNET APPLICATION DEVELOPMENT
MID MARKET ERP DEVELOPMENT
By Brian Terrell
Last week, I gave a preliminary price range for a prospective development project. Today, the customer wanted to know if I thought the eventual price would be more likely to fall in the lower, middle or upper end of that range. I resist giving a price range generally, as it always means we do not understand exactly what the proposed project means to either our prospect or to us. Nonetheless, this question reminded me of my interest in not only the price of services I sell but also the price of services I buy. So, I’m peeling back the curtain so you can see how we determine a price for a software development project.
First of all, we do not price based solely on the time we think it will take to complete a project. I wish that was commonly understood and accepted, but service providers have effectively -- but erroneously -- trained customers and prospects to equate time to produce (or cost) with price. There's much more to it! In fact, we consider time but only in addition to other important components, including technology, support, personnel, and payment terms. Technology is a key input as some technologies contribute more value to an enterprise than others. Support includes training, and the amount of training and support included in a price affects value. The personnel we involve in a process influences the value proposed to a client or prospect and thus the price. And terms, along with the time value of money, impacts price.
The common denominator is value. What adds to a client's perception of a project's value may positively affect a price; whereas a decrease in value should also be reflected in a price. If we hinge price on value, then we serve our prospect's interests by focusing on improving their position through the results of our engagement.
Because today's customer did not reveal additional information about the value of our proposed engagement, I could not be more precise on my price range. Because of that, I was not as helpful as I would like to be. By focusing on the customer and their evaluation of the value of our efforts, I know I am putting their interests first.