Value Billing for Software Projects
by Jonathan Stark
Last week, the folks at Boston-Area FileMaker Developer’s Association (BAFDA) invited me to talk about value billing for software projects. The session was basically a Q&A free-for-all, nicely moderated by organizer Kevin Cunningham. A range of business topics came up, including incorporation, liability, client red flags, etc.
The discussion eventually came round to the financial aspects of managing a software project, which was where I came in. With very few exceptions, everyone in the room said that they bill for work on a time and materials basis (i.e. hourly). I’m strongly against this because:
Hourly billing is corrosive to projects, and ultimately, limits customer satisfaction.
Of course, I realize that most people in the software design/development community bill for projects on an hourly basis. I also realize that with enough discipline, it can be made to work reasonably well. However, I feel that it’s an outdated practice that lives on through inertia rather than effectiveness. If you disagree, let me ask you this:
When did you decide to start billing by the hour?
My guess is that you never consciously decided to bill for project work by the hour. Most people don’t give the question any thought at all; they just jump straight to “how much should I charge per hour?”
I was inspired by the response of the BAFDA members, so I’ve decided to start blogging on this topic regularly. I’ll post every Monday until I get through the points covered in my slides. If you are interested in this topic or have questions, please let me know in the comments.
In the meantime, here is a link to a podcast interview I gave on the subject (there is a lot of info in the comments as well):
http://filemakertalk.com/matt-squared/09016
For a great book on the topic, check out Value Based Fees by Alan Weiss:
Comments
In conversations with other developers about value-based billing, I’ve heard (and share) concerns that you can potentially get yourself into a bad situation if scope creep enters a project. If you’re committing to a fixed price for a project, then you’ve got be very sure that the expectations of the client are very clearly defined. I’m wondering if you agree with that or not.
I’m also wondering if you build into your proposal the time that will be involved in determining what the scope of work really is? Are your proposals extremely detailed? (I’m suspecting that they’re not, and wonder how you manage to pull that off!)
And finally, what do you do in situations where, after a project has landed, you realize that your expectations are quite different from those of the client?
Thanks for sharing your thoughts, ideas, and experience regarding value-based billing. You’ve certainly giving us something to think about!
– Tim
I look forward to the future posts about the subject. Something about this approach feels right, but it isn’t something I would be able to say why I think it feels right. It will be nice to get further information so that I can make that determination.
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