[thelist] development time cost on new functionality

[Ken Schaefer]

It seems you are being overly sensitive.

If we want to go down the Ford route, then one would look at how many expected sales you would have. You're selling a software product in that case (like Microsoft Windows or whatever). In that case, amortise the R&D over the expected sales of the product.

Now, another option would be as you highlight: if you are a consultant or in the service business than certainly fixed priced delivery is an option. The client doesn't need to know what "assets" you already have ready to deploy - they just know that they are getting solution 'x' for 'y' dollars. Delivery risk is on the consultant.

Or, these is time & materials billing. And there's nothing wrong with that either. If that means the first customer pays 100x and the second customer pay 1x, then that's just the way that T&M works. It may turn out that the second customer ends up paying 100x as well, because they require various customisation or whatever.

Having worked for many years at "reassuring expensive" consulting companies (in particular a big one beginning with "A"), I'm pretty familiar with all these models. And it's certainly not driven by "emotion" - ACN is/was not in the business of being emotional or being poor.

Cheers
Ken

-----Original Message-----
From: thelist-bounces at lists.evolt.org [mailto:thelist-bounces at lists.evolt.org] On Behalf Of Matt Warden
Sent: Tuesday, 19 July 2011 12:23 PM
To: thelist at lists.evolt.org
Subject: Re: [thelist] development time cost on new functionality

On Mon, Jul 18, 2011 at 10:36 PM, Ken Schaefer <Ken at adopenstatic.com> wrote:
>> Does Ford sell the second car it produces at slightly less? Does Pfizer sell the second bottle of pills at slightly less?
>
> Does Ford sell the first car at the $2bn it costs to recoup all its R&D effort? No. It amortises the cost across the entire expected sales of the product.
>

No, that is really not what Ford is doing, and I'd be happy to explain offlist. In this thread, we are indeed talking about a scenario where the "R&D" was funded wholly by the initial sale. Are you drawing some on-topic point, or just taking an opportunity to highlight that my analogy wasn't 100%?

I would not beat a dead horse here, but far too many services folks leave money on the table every day in such scenarios, and I don't see how your reply helps remedy that. In fact, it seems counterproductive, as you seem to be suggesting that the price should drop on second sale, or if you have foresight that there will be a second sale, you should charge your first customer less than they are willing to pay you. Both of these options are driven by emotion, not logic. And it is thinking like this that makes our programmer brethren poorer.

Thanks,