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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?

#51

Post by robocat »

jvilalta wrote: post #8

I'll add one more that I have run across. It's a revenue/savings share agreement, where the company writing the software gets an X% of the revenue (or savings) generated by the project.

I saw a small company do all their work this way, where their pitch was more a marketing company with software skills. Projects were successful, but it folded a few years later due to other reasons.

One problem is that clients hate it, even when success was very measurable. I suspect due to our natural tendency for zero-sum thinking. Note that usually the projects were limited to ones where there was a directly measurable outcome to drive the metrics for the payments.

Wierdly enough you would think that such a business could pivot to developing its own product. Why is it that custom software dev houses hardly ever manage to pivot to developing a successful product?

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

#52

Post by xwdv »

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…

Is that 10% profit margin per project? What is the yearly profit margin for a software dev firm?

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

#53

Post by atlasunshrugged »

robocat wrote: post #49
atlasunshrugged wrote: post #35

Earlier quoted context omitted.

I've been in and around the custom software dev scene for a long time (on the sales side mostly) and your example of having kickbacks seems incredibly rare and is definitely not part of 99% of projects (also on a 400k project I doubt you're paying anywhere near 50k in legal costs unless you get sued after). Much more likely is that your buddy does you the favor for free because you're friends, because he trusts you t…

> kickbacks seems incredibly rare and is definitely not part of 99% of projects If kickbacks work, but are surreptitious, then the losing bidders might not be aware of kickbacks? I could easily imagine an ecology of vendors where some regularly use kickbacks/bribes for their bids, and some never do. Personally I haven’t seen kickbacks either: but I’m in NZ, and I haven’t been much involved with the sales process.

Yeah, it's possible for sure, but salespeople like to talk and there's lots of turnover between firms so I think there would just be more rumors floating around if there was a lot of bribery going on. That said, good point mentioning location, I'm in the US and have mainly worked in the US and W. EU, no context on bribery and the like outside of there. That said, I'd still be skeptical about someone from a big company based in the U.S. that could be hit by the U.S. govt by fines like Microsoft having a lot of bribery going on anywhere in its operations

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

#55

Post by roel_v »

xwdv wrote: post #54

How much cash should someone accumulate before they have a decent runway to start a software dev firm with full time employees?

That's the wrong way around. You start small, part time if possible, and grow (and hire) as you get more steady work. Do not save up 2mm, hire 5 guys, then the next Monday morning say "ok guys let's find some customers".

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

#56

Post by rovr138 »

01100011 wrote: post #44
HeyLaughingBoy wrote: post #40

Earlier quoted context omitted.

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 someth…

At my old company we handed it to the client. I don't think any of our clients would have wanted to pay our rates to maintain the servers for them.

In a past job, we'd do the same.

As part of completing, there's a transfer phase. Usually we move everything to their in house/managed servers unless we built it there. In that case, we'd make sure that they disable logins and lock down our accesses.

Regarding OP's question about license and accounts, we'd usually build things with their accesses and keys. It's easier that way.

Regarding small clients, if we took them on there was probably something else in the relationship so we might have kept hosting it for them.

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

#57

Post by HeyLaughingBoy »

rovr138 wrote: post #56
01100011 wrote: post #44

Earlier quoted context omitted.

At my old company we handed it to the client. I don't think any of our clients would have wanted to pay our rates to maintain the servers for them.

In a past job, we'd do the same. As part of completing, there's a transfer phase. Usually we move everything to their in house/managed servers unless we built it there. In that case, we'd make sure that they disable logins and lock down our accesses. Regarding OP's question about license and accounts, we'd usually build things with their accesses and keys. It's easier that way. Regarding small clients, if we took the…

> Regarding OP's question about license and accounts, we'd usually build things with their accesses and keys. It's easier that way.

Good to hear that. It's what we've done so far (transitioning from our own keys, etc. as the project gets closer to finished). It has sometimes been difficult with non-technical clients to, e.g., walk them through the process of getting their own certificates.

When we're integrating with a client who has their own engineering staff, it's pretty much a non-issue.

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

#58

Post by krab »

HeyLaughingBoy wrote: post #40
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'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 someth…

In my experience, it is usually passed to the client with some training. Often, the client wants to order the servers and any saas by himself, you only specify what to order or you get an account within their cloud provider.

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

#59

Post by qz2 »

HeyLaughingBoy wrote: post #40
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'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 someth…

Been 15 years since I did this myself. Got fed up with trying to get people to pay their bills.

Trick is to keep your costs as low as possible and charge them as much as possible for the privilege. I'd probably throw it all at AWS, probably Elastic Beanstalk now and charge them whatever that is plus 30% with a minimum retainer amount. If they want it handed over, there's an exit and handover fee and an ongoing support contract that needs to be set up.

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

#60

Post by elevenoh »

chairmanwow1 wrote: post #37

>> “Hey HN, I'm working on a project for school and need to learn a bit more about the revenue model of custom software dev firms.” I used this trick A LOT in college to get secrets from companies. My friends and I would call some people and tell them we were trying to understand something for a report. It was amazing how much secret information people were willing to share. One of the most powerful assets you have a…

>that .edu email address.

I don't think many care whether it comes from a .edu, or something like a student-appearance twitter account.

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