Web business

How To Price IT Projects?

Someone asked me a fairly simple, yet interesting question: in what way can we price IT projects?

Someone asked me a fairly simple, yet interesting question: in what way can we price IT projects?

I’ll try to answer the question as simply as I can.

Hourly

To put it simply: sit with your customer and discuss together all the project needs (even if you were given a prepared specification!).

Written down? Great…

Now sit with all the members of the team, who will be responsible for the implementation of the project (graphic designers, webmasters, developers, marketing specialists etc.). Discuss all the parts of the project with each of the members. And I mean all(!) of the parts of the project. Discuss all the functionalities, views, or mechanisms.

Discussed? So now price each module hourly.

Creating the layout takes 6h? Ok. Preparing html/css 14h? Ok. Programming 10h? Ok. Now let’s add tests. And ready. Module priced.

Now next module and next, and next. Until we’ve priced everything.

Do we have everything? So now we need to add the rest of tests and also the installation and configuration on the target production server.

And now we know how many working-hours our project takes.

Let’s add a secure limit to pricing hours

Now let’s look at this, what we’ve just priced. Everything’s fine? We probably think so now. So let’s add something to our pricing. More specifically, let’s add 20-30%. Let’s add such an excess to each hourly rate of each single item (for pricing the layout, webmasters, programmers etc.)

Money + cap

We already have a (rather secure) hourly rate. So let’s turn it into money.

How much will the cost be of the graphic work? $20 per hour? So multiply the amount of hours needed to create the layout by those rates. A webmaster costs $25 per hour? So multiply the rate by the amount of hours. Programming $30? As before.

We have our hourly pricing. So let’s sum up the total.

And in that way we achieve our cap. So the maximum amount, which customers will have to pay for this project.

How does cap work?

Cap is nothing other than the maximum cost of the project. So if for the project we’ll need to spend exactly as much working-hours (or more), as we presumed when pricing – the customer pays exactly that. If the project requires less time – the customer pays presumably less.

Why cap?

Simply put: it gives security.

More specifically: the contractor/agency/freelancer may increase the pricing of the project (take out some kind of secure limit/surplus for each executed module).

The customer then feels, they won’t be cheated. They will get the exact hourly reports, which will present the amount, which will have to be paid.

If:

  • the contractor priced the project at their disadvantage (they estimated too few hours), then the customer doesn’t have to worry about it
  • the contractor prices the project at their advantage (they estimated too many hours), then the customer pays less

Win-win

So we are dealing with a real win-win. Everybody wins, they feel secure, in the end they won’t feel cheated.

Of course, we just need to take care of:

  • the appropriate education of the customer, so in that they understand what cap is
  • good hourly pricing and not exaggerated, but secure surplus for each module, which the contractor will create
  • good and honest hourly report, which will show how much time will need to be spent on specific tasks

Fin. Hope you like it.

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