How-to to run a software consulting business

How to decide on your pricing

by shabda on October 9, 2011

A year has 52 weeks, a week has 40 billable hours. So say a developer’s yearly salary is X$. Can you do X$/(52 * 40) to come to an hourly rate. Hell no.

You need to factor in

  • Downtime when you are looking for clients
  • Cost of infrastructure like servers, desktop and office space
  • Vacations
  • Insurance

A good rule of thumb is to take an yearly salary and divide that by 1000.

Of course many clients are going to ask for a fixed pricing. If you are comfortable with the client and specifications are well defined, you should provide a fixed quote.

Breakdown the specs in smaller unit of work. (Not larger than a day and then estimate the amount of work in hours. Multiply that by your hourly rate and add 20% margin as a contingency.) This should give you a guideline to do a fixed rate quote.

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