[thelist] development time cost on new functionality

[Robert Lee]

Bob,

I think you're on the right path with this. Once the component is written
it's now a product, and you have to come up with a fair price based on how
many units you think that you can sell, and what it cost you to build it. Of
course if a client subsidized the building cost you might be able to justify
a lower price, but there's still nothing wrong with selling a product that
you built and own. 

In the Ford example; they do charge the buyer for these R&D costs, but they
spread the cost over the projected life of the product. 

When I'm combining hourly work with a product that I own (component,
library, etc) I bill for both as separate items. I explain to the client
that by using my library they benefit both by not paying me by the hour to
reinvent something that's already been written, and they benefit in that the
library will continue to get updates and bug fixes (that they don't have to
pay for) since it's in use with multiple clients. 

Rob Lee


-----Original Message-----
From: thelist-bounces at lists.evolt.org
[mailto:thelist-bounces at lists.evolt.org] On Behalf Of Bob Meetin
Sent: Friday, July 15, 2011 8:52 AM
To: thelist at lists.evolt.org
Subject: Re: [thelist] development time cost on new functionality


> Why?
>
> Does Ford sell the second car it produces at slightly less? Does
> Pfizer sell the second bottle of pills at slightly less?
>
> This is a common mistake for services guys who aren't used to fixed
> costs. When you sell the second time, that isn't a service. It's a
> product (or "solution", if you prefer). You are not selling your time.
> You are selling something that solves their problem and your cost to
> implement that solution provides only a floor to your price range.
>
> Now you absolutely do not want to bid the second project on an hourly
> basis. That will either leave a ton of money on the table, or leave
> you in ethical soup. Fixed price. And say it as if you're doing them a
> favor in structuring it that way to give them some budgetary
> certainty.
I think the balance is somewhere in between. When Ford manufactures that
first car there is some gamble involved, development, engineering, marketing
costs. If they charged the first, then successive buyers, for that overhead,
then Ford would have vanished years ago.

Yesterday I spent much of the day building bridge between a Joomla gallery
component, Phoca Gallery and the jquery-lighbox application that was
recommended for other reasons last week. Nothing like it that I know of
existed. It greatly facilitates administration.  I can see how reusable it
will be, but in working with my regular small clients few if any would be
willing to pay/license if at full price.  For the next customer it's all but
ready to use. Should they reap the benefits and get it for 30 minutes
installation time, I don't think so, but no way will they pay full price.
This doesn't go over well with many/most of my small business owner clients.
In a corporate environment I can envision a little more wiggle room. Does
the average corporate employee apply as much as 50% work time at work?

The answer, I feel, is situationally dependent. Some of this may depend on
how deeply you can dig in your heels, take a stand.

Bob Meetin
dotted i - http://www.dottedi.biz
LinkedIn: http://www.linkedin.com/in/bobmeetin
303-926-0167 (home/business)

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