August 18, 2010

When it Comes to Pricing, Simpler is Usually Better

Every new outsourcing contract discussion must cover pricing. It’s always the subject that people dance around and are often reluctant to talk about.

There are so many ways to price services. Most high-end professionals work for an hourly rate. Some work on a retainer or monthly for a guaranteed number of hours. Some work on a fixed-bid project basis. And a few will even work for equity. Regardless of the billing agreements, charging for services can test the trust in any buyer-provider relationship.

But shouldn’t pricing be as easy and transparent as every other part of the relationship? Don’t you want to feel confident that you’re not only getting a good deal, but that you can trust your software service provider to bring their best people and practices to the table?

You’re running a complex business and don’t want surprises. You may be pleased if your provider worked extra to meet that important deadline, but not so pleased when you receive a bill that is 40% more than what you expected.

What most customers look for in pricing is this:

  1. A predictable burn rate
  2. A simple pricing structure
  3. Open communication and transparency when changes to a project (e.g. requirements) affect pricing

There is more than one way to meet these criteria. The approach Waverley uses (after a lot of experimenting) is to use time-and-materials pricing and a simple, inclusive hourly-rate pricing structure.

On Waverley projects we provide a team of full-time people and charge for those people on a flat-rate basis. This means that all costs are included except for obvious exclusions such travel, shipping, and special hardware or software that only you may have. Regular client management and onshore and offshore engineering management is always included. The billing rate includes insurance, computers, and a good place for our engineers to work. We can even keep the lights on through an emergency (some locations have large scale power generation facilities). Waverley continually invests to improve our service and tools. We travel to our offices to make sure all is working properly.

As I said, this isn’t the only way for you to feel that you are getting a fair deal from your outsourcer. The main thing with pricing is to be confident that your outsourcer is meeting your need for predictability, simplicity, and transparency.