Stop using the wrong pricing and budget models for custom software and web projects

The six million dollar question of “how much will it cost?” causes many heads to fall into open palms because we’re using the wrong pricing and budgeting models.

Your custom website or app project will be unique from all others. It will share many similarities with other software projects, in much the same way that all vehicles have an engine, wheels, seats etc… but your goals will be specific to your business, it will most likely be aimed at different users and present different challenges.

You should have a good idea of why your business needs the app or website. You will have some clear goals of what you want to achieve. It’s a given that you’ll have a bunch of ideas that you’ve not completely made your mind up on yet. It’s inevitible that there are things that won’t yet have occurred to you until you get going. And let’s not forget the numerous technical challenges that may or may not present themselves along the journey.

This is perfectly normal. All the answers are never there at the beginning, more often than not it takes a bit of effort, discovery and early working versions to get to the exact product or service that you’re developing. There needs to be a degree of flexibility in a project to allow it take shape.

Given this context how do you get a price for your project?

Traditional pricing models are for losers

Traditional pricing models of fixed price and time and materials invariably result in one or both parties losing out.

Calculating a fixed price for a project with so many unknowns is next to impossible. We can make a best guess and we’ll either be under or over in terms of effort and hence cost/price.

We, as the vendor, are carrying all the risk and one or both of us is going to lose out at the end. You lose if we complete well inside of the quoted price because you’ve paid more than you needed to. We lose if it takes longer than estimated to complete because we’re now working for less. You may also lose because quality could be compromised in order to minimise overrun.

Time and materials based pricing doesn’t work so well either because no-one knows how much the end price will be. You, the client are carrying all the risk. If the project takes longer than we all expected and we carry on and deliver regardless then you lose. Additionally this makes budgeting for both parties very difficult.

Fixed budget, controlled scope – the winner’s choice

There is a better way.  Fixing the budget takes care of cost and price allowing us to focus on controlling scope to meet or come inside budget. This is by far a much fairer approach that involves us sharing the risk. It fosters a spirit of collaboration and transparency and ultimately we both win.

A sensible discussion based around your initial aspirations and known requirements can help you decide on a responsible budget. If you don’t have the budget to build something that will succeed then it makes no sense going any further.

Understanding the minimum scope required to achieve success and using the most cost effective approach within the available budget presents an optimum solution. As the vendors, we take on the responsibility of finding the most suitable technology for the project, not necessarily the one we like most.

We can be flexible, remaining open to suggestions and new ideas as we all learn more about the end product. Regular reviews highlight what has been completed to date and what’s still left to do and support decisions about project direction. Is everything still achievable within the remaining budget? Do we need to consider changing the scope? Is there still scope for those inevitable ’nice to have’ but non-essential features?

Conclusion

Fixed price and time and materials models dictate that the lion’s share of requirements and the effort required to meet them are known up-front with a high degree of accuracy.  The variable nature and high percentage of unknowns associated with custom software projects renders them both unfair and unsuitable.

The best approach is a fixed budget, allowing us to deliver the optimum solution within your available budget.

Alex Adams

Alex has been designing, developing and managing software projects since 1998. He is a multidisciplinary developer and has worked with a number of languages, technologies and frameworks. When he's not developing, he's a busy husband and dad who finds a bit of time to train for triathlon events.

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