Value Pricing for Software Projects

The folks at a local developer’s association invited me to talk about value pricing for software projects. The session was basically a Q&A free-for-all, nicely moderated by the organizer. 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 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 However, I feel that it’s an outdated practice that lives on through inertia rather than effectiveness.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 attendees, so I’ve decided to start blogging on this topic regularly. In the meantime, here a podcast interview I gave on the subject.

Read this next: How I Realized Hourly Billing Is Nuts