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How do I go about setting a price for a small program?

By irish ·
Having worked for a large company for ten years I've never sought to freelance. An opportunity has presented itself and when the customer asked how much it would cost, I stumbled like an idiot and said I didn't know. She's called back twice now asking if I can do it, and how much it will cost. She's also mentioned that she has a lot of affiliates and sponsors who are in need of such services (someone to create small programs, using Access or Lotus Notes). Please advise - I'm as 'green' as they come!
Thank you.

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Time and value

by TheChas In reply to How do I go about setting ...

As a consultant, there are 2 ways to cost out projects.

Time: Determine how much time you will need to put in to development and startup support. Then determine what your time is worth.

Value: What is the potential value of the programs to the customers?
If you can determine the value, you can then look at the time it will take, and determine if it is worth your time and effort to pursue the task.

Many times, the cost for custom programs has more to do with the value to the customer rather than the actual cost to create the program.

Next, you need to protect your self, and your code. Make sure that you maintain ownership of the source code, or charge considerably more to give up those rights.
Also be very careful to avoid any suspicion of conflicts of interest when dealing with multiple clients.


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Complex Formula

by GuruOfDos In reply to How do I go about setting ...

Well, as complex as you want to make it!

Start by estimating time taken to create, test and debug the application. Decide what you want to charge per hour.

Say you took 100 hours at $10 per hour. The program has cost you $1000 plus expenses (cost of running pc, printing, media etc. Don't overlook these expenses!). Don't forget time and expenditure on documentation, manuals, etc.

So allowing for expenses, you have 'invested' say $1100 on the project.

You need to sell the program. If you sell 100 copies at $11 a throw, you have covered your investment, and no more. The same applies if you sell 11 copies at $100 a throw.

Determine how many copies you are likely to sell. Divide your investment by that figure. Say you know for a fact you can shift 4 copies straight off, that means you should be selling for about $550 a copy to break even. Now, apply the 'Walmart Principle'. If you sell for half that figure, will you double (or better) the number of customers? If not, then why not?

Having worked out a price per copy, add a profit margin, say 25%. Then repeat the above process.

Remember 10% profit on 100 items is better than 25% profit on 30 items. Do your market research before you even commit yourself to a single byte of code!

If you work the figures correctly, you should find a price point where your costs are recovered in a reasonable time-frame and any additional sales are profit.

Do you then re-invest this profit towards ongoing development, or use the money to live on? You have asked a question to which there is no simple answer!

This leaves out any discussion on 'end user value', which TheChas has mentioned...incorporating this into the equation increases the variables and makes the calculation more complex but will allow you to make a better judgement on selling price.

An how much they are willing to pay for the job. Then, are you prepared to do it for that price....use your formula in reverse to see how much time you can allocate to the job before you make a loss. If it is not then viable, drop the project!

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