[thelist] pricing for reused elements

[Andy Warwick]

On 2001-11-03 at 20:45, seyon at delime.com (Marc Seyon) wrote:

> Greetings all,
> 
> Consider this hypothetical scenario. I develop a widget for Client A. 
> Development takes 10 hours. Setting it up takes 1 hour. Client A is billed 
> for 11 hours work.
> 
> Now a situation comes about where I can reuse this widget for Client B. 
> I've already done the development time, so it only takes 1 hour to set up.
> 
> What should I bill Client B? 11 hours' work - value of developing & 
> deploying the widget? 1 hour's work - deployment time only? Or somewhere in 
> between?
> 
> Comments? Thoughts?

Consider this hypothetical scenario.

I bake an apple pie. Growing the apples takes 2 years. Baking it takes 45
minutes. Customer A is billed market rate for 1 apple pie - ingredients, my
skills as chef and baking time.

Another customer wants an apple pie. I've already grown the apples, my skills
are the same, and it only takes 45 minutes to make. I therefore bill the second
customer a very small percentage of the pie's value, as I only charge him baking
time.

...

Okay, it's a flippant comment, but it has grains of truth.

You have to remember that you'd still have had to do the development work for
client B if client A hadn't had the widget first. Why should B get it cheaper
than A just because he is second.

A key mindset to get into when costing stuff up and billing clients is to work
out what the benefits are to them, not what it costs to you. So, for instance,
if you have spent years learning HTML and use those skills to create a website
in 2 days that will save your client £100,000 over 2 years, you should feel no
shame about charging them £50,000 for 2 days work; he is still ahead £50,000 and
is therefore getting a good deal. Of course, that is a fairly rare example (if
ever!) but it comes back to the old story about the engineer...

A big manufacturer is getting ready to ship a large order for his latest widget,
and a key machine goes down. Panicked he gets on the phone to the machine's
engineer and gets him to come out. The engineer looks at the machine for a
couple of minutes, then hits one side of it with a spanner; the machine springs
back into life and the manufacturer gets his order out on time. The engineer
puts in his invoice - £500. The manufacturer goes mental. "£500 for 2 minutes
work - how can you justify that!!! I want to see that invoice itemised." So the
engineer writes another invoice: call out fee and hitting of machine with hammer
- £20, experience and years of training to the point where I know where to hit
machine - £480. He also points out that for £500 the manufacturer didn't default
on the order which alone was worth £250,000. The manufacturer pays up thinking
how cheap the fix was and what a great deal he got.

So, in your case, I'd look at what the benefit is to client B in providing your
solution. If you feel that he can save money if you charge him for 11 hours
work, and that he is honestly getting a good deal on that, charge him the full
11 hours. He is not just paying for the development and deployment, he is paying
for your skill, experience, knowledge and the benefit to him.

After all, if you went in to a department store and bought a can of soda, you'd
still expect to pay the same as the guy in front of you in the queue, because
the benefit of that drink in quenching your thirst is worth the money you pay
for it, regardless of how many other people on the planet have ever had a soft
drink.

Don't count your value as only what you produce, but every aspect of producing
it, and what it is worth to your customers.

It is a fatal mistake to compete on price; the skill in business is finding
something that is cheap for you to produce, but worth a great deal more to your
buyer. That is exactly the reason I pay someone to cut my lawn. I hate doing it,
and in the 2 hours I save I can earn 2 x the cost to me of paying someone to cut
my lawn. I win becasue I get a tidy garden and the guy cutting my lawn gets paid
for doing what he loves at a good price in that market.

Andy W