Subj : Re: How much should I charge for fixed-price software contract?
To   : comp.programming,comp.lang.java.programmer,comp.lang.lisp
From : Pascal Bourguignon
Date : Sat Jul 09 2005 01:33 pm

rem642b@Yahoo.Com (Robert Maas, see http://tinyurl.com/uh3t) writes:
> A while back some people on the net suggested I work for a fixed-price
> contract instead of an hourly wage. That way the company can tell me
> what they need, and I can do all the work on my own time, and then when
> I have something fully working I present it to them and they pay me
> that fixed amount, and they don't have to worry I'll bill lots of hours
> without getting the job done. But I never did that before, so I had no
> idea how much to charge for any given program. I would like to get at
> least Federal minimum wage, just as if I had an hourly job, but I have
> no idea how many hours a project should cost hence no idea how much
> would be a fair asking price.

This is rather easy.

If the target business process earns the corporation X dollar/year
without your software, but earns X+Y dollar/year with your software,
then you can sell them at a price that depends on the time to ROI they
will accept:

                P/Y = TTROI

                P = TTROI * Y

For example, if their business practice on investing is to expect a
TTROI of 0.25 year, and your software will allow them to earn 1 more
dollar/year/customer and they have 100,000 customers, that is, your
software will earn them 100,000 more dollar/year, then you can quote
it for P = 0.25*100,000 = $25,000.

Note the software might allow them either to increase their income,
or to decrease their costs; it doesn't matter, what  counts is that it
increases their benefice.

Also it's possible that the software allow them only to increase the
number of customer even at the cost of a decreased earned
$/year/customer: it's better to have 100,000 customers/year earning $1
each, than only $10,000 customers/year earning $2 each.  Your Y will
still be positive: $100,000 - $20,000 = $80,000.


It might be profitable to target businesses that accept longer TTROI,
or businesses with a greater number of customers (or with a greater
   potential increase in customer number)
or software that give greater improvments in productivity ($/year/customer), 
or both.

-- 
__Pascal Bourguignon__                     http://www.informatimago.com/
The rule for today:
Touch my tail, I shred your hand.
New rule tomorrow.

.