[thelist] development time cost on new functionality

[Matt Warden]

Ken,

On Tue, Jul 19, 2011 at 10:47 AM, Ken Schaefer <Ken at adopenstatic.com> wrote:
> It seems you are being overly sensitive.

Do not misinterpret my tone. I am "sensitive" to a misconception that
leads people in this community to leave money on the table and
undervalue their own work. You are furthering that misconception.

> 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.
>

For what purpose? You are not answering this question. You are
confusing accounting models with pricing.

Again, I ask you a very simple question: why would I ever charge a
customer less than they are willing to pay for what I'm offering?

Did you see in that question any reference to amortizing costs? No,
because it is not relevant.

> 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.

This is precisely what I am "sensitive" against. What you outline here
is something I can describe as nothing more than a foolish mistake by
the person who chose T&M and did not charge a separate fixed line-item
for their product/solution. And yet you are advocating it!

That's just the way T&M works? The way T&M works is to leave money on
the table? It undervalues your offering? Does that really sound right
to you? Am I the only one who thinks this is all ludicrous?

> 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.
>

Despite your call to authority, the bottom line is that the only thing
that matters when you price something is what your customer is willing
to pay. When you publicly cloud the issue with irrelevant and
illogical strains of thought (like implying that R&D costs influence
prices), you are doing a disservice to a population of people whose
entire experience as $/hr services folks already makes it difficult
for them to recognize this.

Finally, let's settle this Ford issue. You have twice kinda sorta
implied a little bit (without directly saying it) that Ford sets its
prices based on a calculation of amortized fixed costs and estimated
units sold. THIS COULD NOT BE MORE WRONG. Ford sets its prices based
on a study of what potential customers are willing to pay relative to
that product's alternatives. Did you see anything in there about
costs? No, because they are not relevant.

What you are talking about is only a CONSTRAINT. Including the cost of
goods sold allows them to estimate profit, and they will make a BINARY
decision of whether to move forward based on this. For example, if
costs exceed projected revenue, obviously they will can the project.
But you are implying that they would just raise the price of the car,
and that flies in the face of economics 101.

You do not set the price for your product. Your customers do. In the
case of Ford, that means a CONSTRAINT where you can't build things
people don't want enough enough to cover your costs. In the case of
this thread, it means you should not leave money on the table, even if
you could and still make a profit.

Bottom line: why would you sell your software for less than your
customer is willing to pay? Because that's just the way T&M is? Come
on.

-- 
Matt Warden
http://mattwarden.com


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