Archive for the ‘business’ Category

Differentiating price in hours-based software development contracts

There is a certain market price for a software developer with certain amount of relevant work experience. My company is using these prices, regardless of who the client is or what the actual task is. With this strategy,  the only way to increase revenue is to hire more developers and getting more deals. This is not easy for a relatively unknown company like ours.

Coffee shops take advantage of buyer’s price insensitivity by selling special coffees with a lot higher margins than regular coffees while the production costs are almost the same. Could we charge more from customers that are willing to pay more? Below is an example of a differentiated price list.

Product Price Salary Admin.costs Profit Profit increase
Software developer 100€/h 50€/h 25€/h 25€/h
Certified developer 120€/h 50€/h 25€/h 45€/h +80%
Senior developer 150€/h 50€/h 25€/h 75€/h +200%

All three developer types cost the company the same. The developer sertifications are relatively cheap. They usually prove nothing, but some customers might be willing to pay extra for making sure that the developer is familar with the technology. A senior developer could be a “trusted” developer that has been working for current company a couple of years and has already proven the ability to deliver.