Price, cost, profit, on-demand software by enterprise to "us"


3

we are 2 developers that have been working for a consultancy doing a mobile app for about a year, now we are ending our contracts. The enterprise that has contracted our actual/anterior employer-consultancy is asking us to develop 2 "simple" modules in about 2-3 moths and a more complicated module in about 4-6 months but with our own company. The total time is 6 months so we need to do work in parallel.

The first two modules are somewhat easy (they will require 3-4 person per project and two months of work) they are more like web apps, but with the third we will need to investigate more because we don't know exactly how to do it (it will require like 4-6 employees and about 6 months).

We don't know how to put a price for our modules (how much profit do we estimate roughly? we can stimate a little how much time/effort/price will take our employees), even we don't know how many they will cost, for the moment we don't have clear requirements and more for the 3rd module/project.

So the general questions arise:

  • We should contract 2 teams for the 2 little modules? or do them work in parallel?
  • If we put the same team working on both modules, should we lower the final price for both or do it normal and reserve the "extra" for the 3 project? -- Or if we sold 2 different modules with the same people should we charge for each project itself or for the time/work spent?
  • Should we add our pay extra to the stimate of the other employees? or should we replace them... I mean if we do 3 + 3 + 6 (for the 3 projects giving 12 people if we separate the teams), should we add ourselves as (3+2)+(3+2)+(6+2) (for the 3 projects giving 18 people if we separate the teams).
  • Because we only have 1 buyer, how we get a good profit (thinking that our estimations on cost/time are correct and we do it correctly)? (I mean they will like to have the source I guess... don't know about IP or others). I mean, we should charge 10%, 40%, 100%, 200% on our solo buyer? extra of the pure cost of production? (I mean we would not only request the money for our employees, management, risk and so on...). What is the correct "extra" we should seek.
  • IS the employeer waiting a low cost because we don't know how to handle a business, contract, negotiation?

Getting Started Entrepreneurs Team Profitability Cost Estimation

asked Nov 22 '11 at 14:33
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Tyoc213
41 points

1 Answer


1

So basically you have a project which consists in 3 modules and you have some estimates of the amount of work for each.

I will answer the questions in a different order:

  1. The customer/employer is always going to negotiate to lower the costs, also because he might have some insight on how things are done, thus he can roughly estimate.
  2. This sounds like a consultancy project, not a product, so you need to make a good profit out of it to make it worth. You have a direct cost that is the basically, paying your developers' time(1), pay yourself as a manager(2) and cover other expenses(3) like legal, taxes etc... Total price for your customer should be 1+2+3+PROFIT, you choose your PROFIT but make sure to stay competitive, don't give consulting work away for free.
  3. Do your estimates include cost/time for integration? Consider that additional issue could arise at that point. Beware when adding more people to a team, communication gets more difficult, suggested read The Mythical Man Month : people and productivity donĀ“t add linearly.
  4. If your third module is the most risky one you should take more precautions with it and try to begin research early on to mitigate risks as the pop up. If the other modules are easy enough to be done by someone else and are easy to supervise have them done by someone else.
answered Jan 28 '12 at 12:47
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Pdjota
532 points

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