Custom Development Isn't A Commodity That Can be Priced Easily

by Colin Kennedy - Jun 13, 2013

It’s a bad idea to negotiate a fixed price on these types of projects because the very nature of the agreement puts the client and the development company at odds.

The biggest difference between buying a house and a software project is the first is tangible while the latter isn't

© Neuron Global

Yes, this is a loaded statement, but as long as you can accept the following premises: 1) software companies - like any other business - exist to make a profit, and 2) clients want a finished product that they’re happy with, then you can read on and we promise to address the client-provider dynamics in an upcoming blog. As we discussed in a recent blog entry, fixed pricing and custom application development  just don’t mix.

But for the time being, we’d like you to engage in a simple thought experiment about the nature of application/software development. Many people are predisposed to believe that everything that can be bought should have a clear, fixed price. In fact, you might be thinking “I would never buy something that doesn’t have an exact price on it! When I go out to dinner, the menu has a price next to every dish. When I go to get new jeans, every pair has a tag on it that tells me what they cost. And even though it might have required some negotiation, I bought my house for a fixed price and that was the biggest purchase I’ve ever made!”

The thing is, all of these things already exist; they are tangible “finished products” and there can be no question about what features and benefits they’ll provide to the customer who purchases them. But hiring a company to create a custom application falls into a different category, where the final cost cannot be accurately calculated, due to the inherent level of complexity, fluidity, and variability associated with the project. As we’ve discussed previously, programming is much more akin to the work lawyers do; or if you prefer sticking to one of the examples we just used, creating a functioning piece of software from scratch is not all that dissimilar from building a brand new house.

You probably see where we are going with this. All of the reasons why you can affix a price to an existing house based on the number of bedrooms it has, the square footage, the community it’s in, it’s age, the materials used to build it, and so on – don’t apply to a new constructionbecause they are figments of the imagination. What happens if the zoning board refuses to provide you with a permit to build where you planned to, and now you need to relocate to a more expensive area? What happens if, during the construction process, your spouse decides that granite countertops will not cut it in the kitchen and you decide to upgrade to marble? What happens if you decide to wait 10 months to break ground, and during that time the cost of copper rises substantially, thus raising the cost of the plumbing?


A good development company will tell you upfront the pros and cons of a software project

Most reasonable people would agree that there are plenty of unknowns that you need to deal with as they come up when you’re building a new house from the ground up…and custom application development operates the same way. Please, take a minute to reflect on this, we honestly think that something about what we’ve just said will resonate with you. OK….great, you’re still with us and that’s a good sign! But we recognize that you’re a smart, logical-thinking individual who isn’t going to blindly accept everything you read at face value. With that said, we encourage you to check out our next blog on the subject, where we start to detail some of the real-world scenarios that can wreak havoc on fixed price projects.