Ask HN: How do custom software dev firms make money?

Here's a different angle for you.

Most of these dev agencies total revenue size is naturally capped at the networks of the founders and referrals from previous clients. I've seen anywhere from $1m - $10m.

Source - people turn to my company to help them grow. General web dev clients find it hard to differentiate enough to cost effectively scale up customer acquisition.

DM me if you want to see the formulas I've worked out that represent the above idea. Not real math, I'm a sales guy haha, just representations of these ideas formatted like a Google sheet formula.

Arf I didn't cover "when" the client is billed.

For short projects (weeks), usually a percentage before and a percentage afterwards, maybe a percentage in the middle. It's all negotiable, welcome to consulting!

For long projects (years), you will need to agree on a billing schedule from the moment you draft and sign the contract up to the delivery. There should be periodic billings and milestones. Definitely do not work a whole year for free :D

Unlike the comment above (anti pattern!), you don't want to redefine the goals every week and make payment contingency on the goals (it's too much time drafting formal agreements and it allows the client to not pay you by arguing the goal is not reached). What you usually prefer is to bill for the time spent on the project (weekly or monthly) irrelevant of any goals.

There's a fundamental struggle in consulting: you should get regular feedback and make sure you're building something the client is happy with... while you need to make sure you get paid, irrelevant of what exactly was completed and of the shifting will of the client... while you can't waste all the time doing paperwork/contracts to cover your ass. Long story short you always end up billing by time, except for some short specialized work you're very confident you can handle.

I was a director for digital agencies for a long time. There's no real fixed model for any of it. Like others have said, contract-wise you can bill as fixed fee, time and materials or some hybrid. Customers are more apt to sign a fixed fee, but it's a huge risk to put a fixed scope, budget and timing unless you know exactly what you're doing. Any level of ambiguity could lead to costly overruns and missed expectations.

In terms of what kind of work you do for them, it's up to you to sell whatever you're comfortable with so long as every expectation is explicitly documented in the contract/SOW. Companies can hire technology services to do almost anything up and down the value chain. From strategy and user experience design, marketing, content production, system architecture, development to operations and maintenance. The bottom tier is something like staff augmentation where you just rent out warm bodies to do IT work. The agency model is more like landing a complete self-organizing, product development team who take business objectives and translate them into a working product.

Stuff like operations and maintenance is stuff I would typically avoid because it can be open-ended and difficult to make money doing. I usually stipulate that clients have to own infrastructure even if we do the setup and add some specific warranty language on how long we will answer bug reports, what qualifies as a bug and what kind of turnaround time we'd need to resolve them. Especially at small scale, clients will search for any excuse to drag out their contract to get more work out of you or find a reason to not pay so you need enforceable language.

Doing good work and building trust can lead to future work. You need to toe a line between aggressively managing scope to not get taken advantage of while still staying flexible enough to be seen as a good partner. It's really common for a client to have a big vision and no idea what it costs, so we sell an MVP that does maybe 1/4 of their dreams to get a product to market within their budget, but there's still a lot of meat on the bone for future work. Sometimes it leads to a long relationship and sometimes they just fold.

It's a risky business, but there's also a huge market that only seems to be expanding. If you make a name for yourself and build up a few nice portfolio pieces, clients will come to you after not too long.

I had projects like this. We define the whole project with the client first and agree on overall price. I then split it into few stages and upon completion of each stage I would sit with the client show the work and client signs off the stage as done and pays for said stage. With this type of work I would also always charge non refundable initial deposit as sometimes the client will have the contractor started and then change their mind. I also specify 3 month "free" bug fixing after final acceptance and then maintenance fee should they desire.