Sent by Jonathan Stark on July 6th, 2017
When you focus your marketing on a specific target market it increases the likelihood that a chunk coding work you did for one of your clients could be reused for another. This can be extremely good for your profits but there are some tricky bits to navigate.
I’ll illustrate with an example.
Let’s say I’m a mobile developer who works with credit unions. ABCU hires me to build a mobile check deposit (MDC) interface for their iOS and Android apps. I build it for them and they love it.
Then, XYCU comes along and asks me to do the exact same thing.
This raises a couple questions:
If my agreement with ABCU didn’t explicitly state that I owned the MDC code, you can bet that they think they own it. And legally, maybe they do, maybe they don’t.
I honestly don’t know or care what the laws are. I’m much more concerned about ABCU’s expectations. My core guiding principle as a consultant is to deliver 100% customer satisfaction to my clients. Doing something that would leave a client feeling like I screwed them over is not an option for me.
So, in a case where I hadn’t explicitly stated up front that I would own the MDC code, I wouldn’t reuse it for XYCU.
But let’s say I HAD discussed it up front with ABCU and it was clear that my intent was to reuse it in the future with other credit unions.
How much should I charge XYCU for the MDC interface?
If I bill by the hour, this is a tough question to answer. Imagine that the work for ABCU took 200 hours at $150 per hour (i.e., $30K). Since I only have to do the integration for XYCU, it’ll probably only take me 20 hours. At $150 per hour, that’s $3K.
Is that fair to ABCU to charge XYCU a tenth of what ABCU paid? ABCU would essentially be subsidizing XYCU’s mobile apps. Granted, ABCU probably wouldn’t find out (at least not right away). But if/when they did, I would fear that they’d be ticked off (see point above about delivering 100% customer satisfaction).
Is this fair to me?
Based on the fact that ABCU happily paid $30K for the MDC functionality, we can safely assume that it’s worth much more than that to them. I’ll conservatively estimate a 3x return for ABCU and say that MDC is worth $90K to them per year.
For the sake of discussion, let’s assume that XYCU is roughly the same size as ABCU, and that it’s reasonably safe to assume that the value would be similar. Does it make sense for me to charge $3K for something worth $90K to the buyer? That doesn’t sound reasonable to me. It is hard to call it “unfair” if I’m doing it to myself, but it’s certainly not equitable.
But what if I DON’T charge by the hour?
If I give fixed value-based prices to clients, it’s a no brainer to charge XYCU $30K for 20 hours of integration work. In fact, I could make the argument that I should charge them even more because I can deliver the desired outcome ten times faster than you did for ABCU.
In my humble opinion:
P.S. Does it feel like your business has been stuck in neutral for a long time? I’m available for a limited number of 1-on-1 coaching calls each month. Book a call and I’ll get you unstuck