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

The most success I have had with per project pricing is having a discovery phase to actually scope out the work.

There is a decent amount of up-front work, but it really ensures everyone is on the same page.

This is usually a series of 4 meetings, anywhere from 30 minutes to an hour.

From there, I can write a spec/contract, I present that, which is another meeting (I don’t just email it).

Then once they agree, 50% up front, and 50% upon completion.

There is language in the contract that any changes to spec/feature, they require an additional contract and do not change existing work/agreement.

The pain comes from vague specs and everybody has a different interpretation, and the feat of not getting paid until satisfying the vague expectations.

So, just don’t do that.

:)

We billed out Sr devs at around $300/hr. Not sure about normal staff engineers but probably around $175, depending on the client. I believe one of our bigger, long term customers got us down to $125/hr but we hated it and would have dropped them(and occasionally did) when better projects came up. We also provided project managers and would bill them out as well(not sure one the rate). Fixed price happens rarely but with software being so unpredictable that basically never happens. You bill extra for any equipment you need to procure, and it usually goes back to the customer at the end of the project(but often the customer wouldn't ask for it, leading to piles of shit that periodically needed recycling).

You try to seek out larger, long-term, "cash cow" projects. One project had probably 30 people on it for years because we were working with a large, established company with no software expertise who wanted to make software heavy products. We basically became their software team while they tried (and repeatedly failed) to spin one up internally. Some projects are more like "staff augmentation" where we would just provide engineers to work with other companies' teams, fixing bugs and adding features(I did that for about 5 years for one client).

We maintained a core of semi-permanent employees who were hourly W-2 and received benefits. There was also a substantial pool of contractors we would tap into if needed. Compensation for W-2s ranged from, say, $60-120/hr depending on experience. So in my case there was a $50-150 hourly differential between my salary(not counting benefits) and what we billed.

There are some general staff you need to account for, like managers, HR, accounting, clerical, sales and marketing. If you're not careful, sales costs can be significant(especially if you have a salesperson falsifying records like we did...).

In the end the company was sold, sold again, and is now part of a giant, worldwide consulting firm. I think the owner made a decent amount by non-valley standards, but he's definitely not 'FU' rich. Consulting firms are generally about the people and how much you can bill for their time. It doesn't generally scale well. Products, on the other hand, can scale quite well after you recoup your NRE costs. We tried, and failed, a few times over the years to make products and it never worked out for us. Consulting was a stable, albeit less lucrative, source of income.

Take advantage of it while you can.