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

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

#101

Post by alexdowad »

gharman wrote: post #32

I founded, grew, and sold a boutique software services co. Here's the skinny: * The core revenue model is charge customers a certain amount for doing work, and to have a lower internal cost. (duh) * Typically you're looking for a 30% margin or thereabouts; after cost of sales, consultant bench time (yeah you gotta pay that even when folks are idle, if they're employees), etc. you have maybe a 10% profit margin when y…

> 30% margin

I know of firms which hire offshore programmers for $15/hr and bill the client $90/hr. (500% margin!) Of course, it helps if the client has plenty of money.

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

#102

Post by aconsult1 »

wpietri wrote: post #11

I think it depends a lot on the companies involved. From what I've seen, things usually fall along a spectrum from "fixed bid" to "time and materials". With the former, the company that wants the software puts together an explanation of what they want and then asks vendors to submit a price. With the latter, the vendor promises to provide X number of people at a rate of $Y for as long as the project goes. In between…

I find your comment very accurate of the status quo when you look at dev consulting companies at large.

The funny thing is: I started my software engineer career working for a large consulting firm and my frustration with the whole game was exactly my motivation 15 years ago to start my own business. I wanted to create a company that was 1) fun place to work for devs and 2) that was able to deliver on time and on budget on every single project (I'm obsessed about customer satisfaction).

15 years later and many many projects later I think I have definitely succeeded in my goal. So I think I have proof that software consulting doesn't really have to be that way. I can be fun, profitable and beneficial to all parties involved. We never had to hire a single sales person until 2020 because word of mouth kept us going.

By the way, we work at much better margins than those listed in here (I'm too shy to say the number though).

I think a lot has to do with passion and dedication. Knowing when to say no to customers and when to call bs on their deadlines.

I have definitely lost deals to other companies with a not-so-good value proposition but in the end those same customer come back calling us once they project melt in front of their eyes. I lost count how many times that happened. At least 30% of our project are a re-do of other companies fuck-ups.

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

#103

Post by aconsult1 »

sirspacey wrote: post #86
tootie wrote: post #18

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 expectation…

Along these lines it is important to recognize: 1) the larger the client, the more it is an intentional practice to leverage any gaps in the contract to extract whatever value the company wants at that moment, regardless of what was agreed to 2) what the client “remembers” the agreement to make is usually whatever they first proposed. While many agencies seek to define agreements as a defense, larger clients happily…

This is not my experience at all. If you know what you're doing is relatively easy to avoid the pitfalls you described.

Working with f500 companies is very good business if you have the reputation to push back on their crazy deadlines and actually deliver after they sign you a contract. If you show them professional and reliable work the issues you described typically go away.

I own a software consulting firm and those are problems that I frequently see in projects done by companies that are only looking for the paycheck and then they cut every corner possible and have no real commitment with the project/customer.

In the end the PM says "at least I hired Accenture so this isn't my fault".

It was exactly for those reasons that 15 years ago I decided to start my own company trying to 1) have fun place for devs and 2) deliver on budget and on time in every single project. For 15 years I didn't have to hire a single sales person because our reputation kept bringing more projects than we could handle.

Software consulting can be very fulfilling and rewarding if you have the passion and nails the deliveries. If you build, they'll come.

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

#104

Post by aconsult1 »

gharman wrote: post #32

I founded, grew, and sold a boutique software services co. Here's the skinny: * The core revenue model is charge customers a certain amount for doing work, and to have a lower internal cost. (duh) * Typically you're looking for a 30% margin or thereabouts; after cost of sales, consultant bench time (yeah you gotta pay that even when folks are idle, if they're employees), etc. you have maybe a 10% profit margin when y…

I run a successful software consulting company and failed miserably when tried to sell it about 3 years ago. Can you share any insights on how that process worked out for you? Any tips on how to find potential buyers?

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

#105

Post by christopherwang »

ozten wrote: post #25

To add to other answers, often a business or non-profit will put out a request for proposals (RFP). You read a document or have a meeting to understand what they are trying to accomplish. You then write up a proposal with a budget. They read all the proposals and choose a dev firm to work with.

Is there a better place to find new and available RFPs than a blanket google/duckduckgo search?

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

#106

Post by ozten »

christopherwang wrote: post #105
ozten wrote: post #25

To add to other answers, often a business or non-profit will put out a request for proposals (RFP). You read a document or have a meeting to understand what they are trying to accomplish. You then write up a proposal with a budget. They read all the proposals and choose a dev firm to work with.

Is there a better place to find new and available RFPs than a blanket google/duckduckgo search?

I would pick a very specific niche (landscaping companies for high end architecture firms) or focus on local businesses in a category (architecture firms) and try to answer that question for myself. I'd connect with a few and ask them how they have done RFPs in the past and if they have any current projects open for bid.

You can search for 'how to find new and available RFPs' and the search results will explain services you can pay to get this information.

Free - Hustle and reach out to businesses

Paid - Directories of open RFPs

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

#107

Post by willnz »

alexdowad wrote: post #101
gharman wrote: post #32

I founded, grew, and sold a boutique software services co. Here's the skinny: * The core revenue model is charge customers a certain amount for doing work, and to have a lower internal cost. (duh) * Typically you're looking for a 30% margin or thereabouts; after cost of sales, consultant bench time (yeah you gotta pay that even when folks are idle, if they're employees), etc. you have maybe a 10% profit margin when y…

> 30% margin I know of firms which hire offshore programmers for $15/hr and bill the client $90/hr. (500% margin!) Of course, it helps if the client has plenty of money.

Unless this is true staff augmentation it NEVER works out to that sort of margin. Overhead creeps in if you want to grow (and you want the quality to be maintained).

I'm guessing an established firm that hires and bills at those rates would end up having 40-50% margin at the end of the day.

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

#108

Post by stakkur »

Based on my own work experience with such firms, the revenue model is the same as any other contractor/specialist hired to do work--make a margin on every project you can, and keep searching and optimizing for projects that allow a comfortable margin above costs.

The only other model I've seen is to offer a canned solution that's customized for each customer, then charge an initial 'customization' fee and a monthly/yearly maintenance fee.

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

#109

Post by wpietri »

aconsult1 wrote: post #102
wpietri wrote: post #11

I think it depends a lot on the companies involved. From what I've seen, things usually fall along a spectrum from "fixed bid" to "time and materials". With the former, the company that wants the software puts together an explanation of what they want and then asks vendors to submit a price. With the latter, the vendor promises to provide X number of people at a rate of $Y for as long as the project goes. In between…

I find your comment very accurate of the status quo when you look at dev consulting companies at large. The funny thing is: I started my software engineer career working for a large consulting firm and my frustration with the whole game was exactly my motivation 15 years ago to start my own business. I wanted to create a company that was 1) fun place to work for devs and 2) that was able to deliver on time and on bud…

Congrats! Yes, I should have mentioned that I know some people who have made a successful go of it. And yes, some clients are capable of actually learning lessons. Glad to hear you're finding them.

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

#110

Post by apkallum »

collin128 wrote: post #14

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…

How can I DM you?
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