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The cost (and value) of software

Every now and then, I'll have someone who contacts me, seems keen to build a project with me, and then balks when they see my rates. This may sound like I'm over-charging, but my rates are actually relatively low for a web developer. If you engaged my services while I was working for an agency, you should expect to be charged anywhere from 150-250% of my hourly rate to get, essentially, the same service.

People come to me looking for a piece of software to be built to their specifications, often to save money or time in their business (or even just to increase their own productivity). Most of my clients are aware of the value that this will add for them; the ones who aren't are the ones who see the cost and start having second thoughts.

Custom software is expensive not because developers are greedy, but because building something to meet your specific business needs takes time. You want your software to be reliable, fast, scalable, and time-saving. These things generally require an understanding of your business that can't be guessed at, or seen from the outside. They will require the developer to understand and formalize business processes that you may not even be consciously aware that you have.

How could I justify spending up to $20,000 on software?

If you ran a business selling different types of widgets, you may spend $20,000 on new software to help you organize your warehouse and sales processes. $20,000 sounds like a lot of money, until you consider the value (not the cost) that it brings to your business. The software may save your staff 10 hours per week in time that would be spent looking on shelves for particular widgets. That could result in a saving of up to $200 per week where you no longer have to pay a staff member to check the warehouse every time a customer has a query. This also means that your staff now have an extra 10 hours each week to serve customers and make sales.

Given a conservative widget-selling estimate of an average $50/hour in widget sales, your new software has just made you approximately $26,000 of extra sales in the first year. It's not only paid itself off, but it's going to keep paying for itself next year, and the year after that.

While this is a hypothetical example, it serves to illustrate that software is meant to make your business processes easier, freeing you up to focus on expanding your business. This simple example doesn't even take into account other factors such as streamlined ordering, online selling, and the ability to break into new markets.

Why should I pay you to build my software when there are other, cheaper options?

This is a question I get from some people, and here is the response I generally give.

Yes, there are cheaper options than hiring someone like me, but they all come with their own, less visible costs. To explain, how about a car analogy*?

Imagine, if you will, that you were looking to buy a new car. You have a few options:

  • A luxury sports car ($200,000)
  • A 20-year-old beater ($2,000)
  • A pretty good sedan ($30,000)
  • Public transport ($30/month)

The luxury sports car
Now if you're absolutely made of money, then you may just go for the luxury sports car. It may not be the most practical choice, but it's fast and looks good. It comes with all the extras you could ever want, and some that you didn't even know you wanted.

This is equivalent to hiring your own in-house development team (after wages, increased business costs, etc., then a small IT department would probably be comparable, cost wise, to buying a luxury sports car. Every year.)

The 20-year-old beater
If you're looking to pinch pennies in the short term, then you might be tempted to go for the beater. It runs, sure, but there are a lot of costs that you're not thinking about. The engine makes a horrible rattle, the passenger door won't open from the inside, the windows don't go down all the way, there's a very suspicious stain on the back seat, and the aircon doesn't work (the guy said it just needed a re-gas). You're never sure from day to day if it will start, the manual is in Russian (but you're certain that it doesn't matter because you're pretty sure it's the manual for an entirely different car), and the only mechanic who will even look at it looks like he's just going to take your money and sell the car for scrap.

This is the equivalent of going for the lowest bidder (while there are some quality people on sites like elance or oDesk, many of the bidders will do more damage to your business than good). Many of those bids come from companies in second world countries where accountability is impossible to enforce, and more money can be made by holding your software to ransom in the future than can be made building it in the first place**. While the initial cost may be low, finding someone who will support it will be expensive, if it's even possible. The outcome is likely to be unpredictable, unstable, and (at worst) damaging to your business and your customers.

The sedan
It's reliable, comes with a warranty, and you can pick the extras that suit your purposes. It's more expensive than the beater, sure, but it has a level of quality that is guaranteed. It's easy to find someone who will work on it for you if you have any issues, everything works like it's meant to, and it will last you for many years.

While not a perfect analogy for the services I offer, the price of a large project would be comparable to a small car, and would be built to last. I offer a warranty period on any software that I build, and I make the effort to find out how you work before I design your software. What you end up with is reliable, stable, supported software which meets the needs of you and your business. For a reasonable once-off cost, you would receive software which (aside from minor tune-ups and new features that you may want added) would last you for many years, relatively maintenance free.

Public transport
The final option, which is a real option for many small businesses, is the equivalent of public transport. It won't necessarily go exactly where you want to, and sometimes you will have to mix multiple options together to get where you want to go. It costs you every time you travel, but they're small costs. You don't have to worry about paying for maintenance, but you will have to put up with occasional service delays, and sometimes they'll just change all the routes or timetables without warning.

This is the equivalent of hosted/managed services, or out-of-the-box software. It gives you a lower cost (as the cost is shared between you and many other people), but there is much less flexibility, and the costs don't stop. For many small businesses who just want a web presence, I'll suggest that they use some ready-built software that meets most of their needs.

Software can be hard, but having the right software at the right price could make your business boom. I always try to ensure that the solution I offer is right for you, your business, and your budget. If you have a project in mind that you want to talk about, contact me.

* I find that cars are generally easy for people to understand, so even though I don't know much about them, they're still my go-to analogy.

** I'm not saying that people from second world countries shouldn't be trusted - many of them are brilliant programmers. The problem is that, with the corruption in many second world countries, "doing a good job, and charging a fair rate" isn't a workable business model; just an invitation for people with less scruples to come and make your life hell.

Comments have been locked for this post.

Sam, great line on car's manual written in Russian. Thoroughly enjoyed the post.

Instead of sending the clients who get shocked by my rates link to oDesk, I'll be sending them link to this post.