Development Valuation, or Why Vaporware Uses Dynamic Pricing

Posted December 10, 2014 by Dan Moore in Startups

Being in the consulting business, we’re approached by clients in a variety of ways. But out of all the possible backgrounds and variations, one thing is static: Payment. Investment can come in all shapes and forms. While companies have traded in very unique return structures — including equity, education, connections, licenses, credits, and legal documents — the most successful and standard is cold hard cash. This societal blank check is the universally understood and demanded purveyor of progress.

Philosophical discussions aside, there’s plenty of long term discussion from thousands of experts on the Consultant-Client relationship and payment practices. You can even read summaries of summaries of discussions from all points of views. There’s even some wacky hybrid models that muddy the waters of pricing and payment.

Instead of being yet another text entry debating the pros and cons of fixed bids and hourly rates, we’re interested in demystifying our thought process. We will explain how we evaluate and price projects we work on. This process ultimately decides the clients we build relationships with.

We've distilled our pricing process to four core principles or steps:

  1. Setting Expectations
  2. Evaluating and Balancing Risks
  3. Ongoing Communication
  4. Outcome Estimation and Analysis

Each of the steps towards valuation is firmly dead center between a science and an art. So they each need more detailed discussion, which we will post in follow up entries. But to prevent suspense, and to set an expectation, we'll share the outcome.

Ideally, we want to establish a long term relationship with each client that contains a combination of two models of payment.

  1. A weekly rate scaled by the number of people on the effort that week.
  2. A flexible maintenance contract at a fixed fee.

Spoiler alert, we've been operating under a much more flexible manner as we scale up our operations, which requires a flexible pricing model. Therefore, we currently operate on an hourly basis where each task is evaluated for inclusion, and we hold execution as the first and upmost priority.

Follow along to truly understand the thought process behind how we set our prices. If you want to read more about our company and what we do, visit our website. You can also sign up for my office hours, which I hold at HQ Raleigh.


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