Software Development, Web Design, Training


CFCamp Notes - The value of your services: are you ready to break the time barrier? -- Jorge Reyes

Cost based pricing vs value based pricing

Cost base pricing
= hourly rates

Complexity of pricing
dev process, resources, time, budget, ROI, risk, etc, etc.

traditional pricing
Example: $75/hour

profit = revenue - cost
to increase profit either increase revenue or decrease cost

fixed developer rate. translated to customer as a "fixed client rate"

fixed base pricing
haven't even met the client yet, but you already have a price (hourly rate) set

if you're an hour seller, your'e restricting yourself. the year only has so many hours, can't increase that.
not even taking into account "EFFECTIVE hourly rate"

creates a conflict of interest w/ clients
Hour Seller wants to sell more hours
Hour Buyer wants to buy LESS hours
he wants you to work less, and do things faster

flip the coin
getting overpaid sometimes
feeling UNDERpaid sometimes

Another pricing strategy -- VALUE based pricing

very powerful approach
better than just manipulating rates
clients talk to each other and compare your hourly rates to see if you're charing them more/less than others.

as developers, we have the ability to sell VALUE

2 sides of value
1. client
2. implementation

client value
goals - client has goals for the business
time impact on business

implementation value
more on my (dev) side

key for a VBP
want to become "value sellers"
approach the client more in-depth

when you talk to the client
do you talk about features? goals? functionality? client's needs?

client discovery --
key for VBP
"what are your requirements? what are you needs/goals for this project?"
brings us closer to the client
started getting more involved, more in-depth relationship
requires a mindset change -- not selling hours, trying to be meaningful
with a new mindset came new results

"i'm not a collection of hours. i'm the accumulation of all my skills and knowledge"

really nice to talk about selling value but at the end of the day you need to provide the client w/ a price

1. fixed rate and fixed costs approaches
basically just playing around with the markup.
how much experience do i have to gain in order to build this? can i use all things i've already built? hourly approach doesn't consider me using things that previously took me 5 years to build

2. flexible rate
not everyone can do it. depends on the industry, your client base, etc.
flexible rate w/ my developers
for each project (depending on client)

3. temporary partnership
less common
fixed cost. development team is no longer only a developer. becomes a partner for this client specifically.
agree to certain terms. will be sharing the VBP
good when you have a lot of uncertainty and big numbers
can share the risk w/ your development team
difficult to implement w/ a company that has big payrolls to cover

2 benefits in VBP
breaking the time barrier
client is first

Scary Pricing Components
Scope of Work

really important
get a better SOW with a better Discovery


Rapid prototyping (balsamiq mockups, etc)
reiterate and refine

5 things that have a huge potential of going wrong
estimation techniques
uncertainty & extreme positivism
SOW definition
progress validation

Developer ethics --
previous developer left the client out in the air
generally bad for us -- tough to pick up a project in the middle. generally have to tell the client they need to start from scratch again to do it right.
this really hurts the client (especially in the CFML community)
need to take care of our clients in a "community sense" -- we're responsible for them

hourly rate for discovery phase
then maybe switch to VBP if/when you feel you have enough info to speak intelligently with the project team and can tell them "no that's not what you need built", etc.

maintenance is an hourly rate.
VBP is basically for "new projects" -- it works best then