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Offline leburpor

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This is just a post to rant...and yet to also express my astonishment on what software can do these days.

So today I signed off on two projects which will implement two distinct Softwares for my business. If all goes to plan, these softwares will forecast my daily product requirements every day, plan my daily production, plan my daily overseas and local purchases, automate order processing, turn my warehouses into a mostly paperless environment, improve product picking accuracy, manage inventory levels, improve customer satisfaction and improve so many other things that are essentially on my supply chain.

All well and good....

BUT WHY IS IT SO FREAKING EXPENSIVE!!!!!!???

Despite a high (it's relative, I know...but still high for me) price tag, our payback is like 8 months! WOW!  :eek:

In the end, the numbers decided whether the project goes ahead or not. But to spend big-$$ on something you can't touch is still weird...

Sheesh...I knew I should have gone into software development... :doh:



Offline AshSimmonds

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Sheesh...I knew I should have gone into software development... :doh:

You're the one tossing up on how to spend $200k on a car and I'm here going broke trying to keep a Fiat on the road.  I knew I shouldn't have gone into software development... :(



Offline leburpor

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maybe if I had gone into software development I'd be trying to decide whether to get a brand new or second hand Gulfstream jet!? :)



Offline flamestone

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Yeah its a strange thing taking money from people after giving them something they can't actually touch!

But I do "value pricing" rather than hourly charges these days, which means everyone still walks away feeling warm and fuzzy. :thumbsup:



Offline AshSimmonds

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But I do "value pricing" rather than hourly charges these days, which means everyone still walks away feeling warm and fuzzy. :thumbsup:

How do you determine your prices?  I'm getting my stuff sorted to start offering various services etc., but want to get away from the time=money scenario - I can always just contract myself out like I do now to pay the rent.



Offline flamestone

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I guess its all about getting to know/understand the potential customer and eventually getting a feel for what a solution is worth.  And "solution" to me is the real key.

No one really wants to buy an hour or a day of my time.  They want to buy a solution.

I guess that only works for me because I'm not selling a product in a box, and I intentionally avoid the ones that do just want a standard boxed product that anyone could provide.



Offline leburpor

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As a customer, we always break down costs to daily rates, even though there is a fixed price for a project. This is how we assess if something is of reasonable price. From my observation the daily rates are anywhere between $1000 - $1200 per day. The supplier then justifies the project value by 'breaking down' the number of days required to conduct a particular activity. We've used these break downs to negotiate up or down the project value via excluding or adding features/specs. I presume this is standard practice for the IT field?



Offline flamestone

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Sounds pretty standard, but also exactly the sort of job I try to avoid.

If someone is going to be breaking down my expertise and experience into an hourly rate, then maybe they're not properly focused on what it is we'll be trying to achieve, and 9 times out of 10 there will be problems with unmet expectations later.

When you've assessed ROI and all other important measures, and given the project the go ahead, and agreed on a delivery date, does it really matter if I spent 1 minute or 1 month getting it completed?  If you valued it correctly in the first place, then that value shouldn't change based on my actual time spent on it.

Its all good theory, and something I enjoy debating openly with the people I work with.

I just hope that business stays good so that I don't have to stop turning away jobs where the potential client only wants to talk hourly rate.  I know I didn't always have that luxury.



Offline leburpor

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Any negotiations on price must ofcourse be taken before engagement. The use of hourly or, more commonly, day rates are for negotiation purposes and for valuation of any variations to project scope. Otherwise, we will only go with a project on a fixed price basis. I've found that fixing a price, especially on greenfields projects, offers more protection to us instead of a way to yield a better return.

As you said, once the project price has been agreed to I don't care what your costs are as long as it meets the agreed specs, delivered on time and is developed and supported in a professional manner. The latter being very important as the vendor must always demonstrate this to ensure our continued confidence. We've terminated projects with vendors about 5% into a project because they failed to do this.



Offline AshSimmonds

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Like this old tale of the know-where man:
---> http://www.snopes.com/business/genius/where.asp

Quote
Nikola Tesla visited Henry Ford at his factory, which was having some kind of difficulty.  Ford asked Tesla if he could help identify the problem area.  Tesla walked up to a wall of boilerplate and made a small X in chalk on one of the plates.  Ford was thrilled, and told him to send an invoice.

The bill arrived, for $10,000.  Ford asked for a breakdown.  Tesla sent another invoice, indicating a $1 charge for marking the wall with an X, and $9,999 for knowing where to put it.



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