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

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 you're at decent utilization.

* Hourly and fixed bid are the primary structures - and I've seen plenty of both. This is simply a question of who will take on the risk of overrun. If it's the services shop (i.e. fixed bid), then they pay for that additional risk by padding the price above their best hourly estimate (that padding is what pays for the services if it does overrun, and is the reward for taking the risk if it finishes on time).

* You can lower hourly costs and increase predictability on your resources (an endearing term for employees/people) by hiring them full time, but you take on the risk of paying them for bench time (when you don't have a contract for them, they still get paid). You can avoid this risk for higher hourly rates by using subcontractors. A good practice is to keep a "bench" of folks in your primary areas of expertise and to supplement with subcontractors for speciality tasks.

* Ongoing maintenance revenue - maybe, maybe not. Wise customers will want to learn how to maintain their own software and include training as part of the contract - or even embed their resources in the team. This isn't quite like sales of a big enterprise software platform in that regard.

* A better long-term practice is to utilize the "foot in the door" to spread out and find other, new work within that customer's organization. Of course existing projects will continue as long as there's a need and the customer is happy, but I don't see a lot of "maintenance" contracts per se.

One thing to point out is that there are varying degrees of customs. Every client project is custom in the sense that they all have different pics, layouts, colors, et., but the underlying technology may be the same (e.g. Wordpress). The more you can use off the self components and just tweak them, the more predictable a project will be. This type of work tends to be very competitive & you’ll often hear that it’s a race to the bottom. While the quality of Wordpress implementations can vary drastically, it can be difficult for a client to understand those differences, which makes it challenging to sell premium services.

When work is truly custom, and you’re building much of it from scratch (e.g. using Ruby on Rails with extensive amounts of custom design and business logic), this can be much more expensive. It’s quite difficult to find good developers who can help you figure out what you need, come up with a plan that you’re comfortable with, and actually deliver something you’ll be happy with.

One thing not mentioned in many of these threads is using an Uber/Gigster style model where instead of having an internal bench of folks who are FTEs, you keep on a larger bench of contractors who are only paid when they work on a project. There are definitely pros and cons to this approach and I'm happy to dive in depth into them if it's of interest to folks (I was early at Gigster YCS15 and work at a firm, tribeai.com that has a similar model but focused only on ML projects).

But at a high level, this is something to consider if you have a good network of friends/former colleagues who are also solid devs who you can tap for projects to rapidly expand your services offering and capabilities without paying for a bench and taking the risk of having a bunch of people you have to constantly pay

I'm with an engineering services co and we just started getting into Web work: until now we've primarily done embedded systems and mobile apps.

How did you typically manage the server/ops end? i.e., do you turn that over to the client and say "here are all the credentials, SaaS licenses and everything you need to run this, good luck" or did you offer Operations & server management as part of your package?

It's something I'm not finding good information on from the web. Real-world insight would be helpful, if you can.