What is "our" time worth ?

[yyrkoon 250]

Recently I was approached by someone I know to write software for an msp430 in a professional capacity. Which got me to thinking; How should I get paid, and how much ? While I can not really discuss what the project is, because of an NDA. I can say that I would be using 3 GPIO's and one channel of the on chip ADC. I will also need to "kick the dog" and possibly setup a timer for various actions.

 

So here is my problem. This idea is mine, and has been mine for 3-4 years now. So I do want to keep software IP, in the context that I will be reusing my own idea as I see fit. So do I bid for a lump sum, or a per MCU sum ? Opting for a lump sum could be problematic as it would probably require me to share my software IP with another party. But a per MCU sum would probably involve me setting up a "burning" ,and test jig. So I can flash the MCU, test, and blow the fuse on chip once verified good.

 

I'm leaning heavily towards a per MCU "licensing fee", but how would one determine a fair price per MCU ? Or the lump sum for that matter. Sharing my own software IP with another party has to be worth something in of it's self . . .

[Fmilburn 445]

I will give you my thoughts for what they are worth...  You are selling a product more than your engineering expertise.  I have worked as both an engineering consultant selling expertise (priced by the hour usually but can be bid lump sum) and selling a product - all in a different field of engineering but I think this applies.  Selling expertise means your hour or day rate must be competitive with the competition.  Selling a product means you must be delivering something of value to the customer and it must be at a price point the customer can bear regardless of the hours or expertise that went into it.

 

So, in my opinion, the first thing is to get an understanding of the value your product has to the customer.  If the value to the customer is low relative to your valuation, and especially if they are going to only have a few units, you are probably looking at a per unit fee if you want to do business with them.  Of course you can always look at hybrid cases like starting off with a relatively high per unit fee, reducing the fee if production increases, or converting to some kind of lump sum if the product takes off.  In any case, you would do well to understand the value to the customer and negotiate accordingly.

[yyrkoon 250]

Something that may not be readily obvious. If I do a per MCU deal. I will need to charge for equipment I need to purchase for the project, the MCUs themselves( unless they can get a better deal and send to me ), the time I spend burning, and testing, as well as a licensing fee for my software. So as far as what the product is worth to the customer . . . yeah, I do not think that is the deciding factor. The deciding factor is going to be covering my costs + a fair fee to compensate me for my time. Also "what it's worth to the customer" implies the more it's worth to them, the more you stick it to them. Which is not how I personally do business.

 

So anyway, that is how I feel about that bit of it. I do also appreciate the comments @@Fmilburn

 

Oh and right. I do also think there should be either a setup fee, or a requirement to purpose xxx amount of MCUs. So that at minimum the whole process is worth my time . . .

[Fmilburn 445]

Knowing the value of your product to the customer does not mean you have to stick it to them (or even that you can for that matter), but you can't determine the fair value without it in my opinion.  Fair market value is frequently defined as the valuation a knowledgeable buyer and seller would pay for an asset when behaving in their own interest and without undue pressure to buy or sell.  Your choice though.  Personally, I give away most of my time for nothing but the satisfaction of helping someone these days.

 

Anyway, most of the projects I worked on (again, another field of engineering) charged around 15% additional for purchase of commodity materials to cover their overhead on large projects.  This might be more or less depending on quantity and difficulty in purchasing.  It is probably too low for a small quantity so run the numbers.  The same for consumables, mail, transportation, etc. - you should recoup more than the cost if you are devoting time to it. The cost of standard equipment, e.g. computers, soldering station, whatever, were normally included in the hourly fee or a unit cost if you or another person are performing work.  A setup fee was not atypical and reflected the hours involved.  Getting the definition of the scope of the work, including the minimum quantity is of course key.  Good luck

[yyrkoon 250]

If I had to buy equipment specifically for this project. You can bet the customer would pay for it. As I'm not in the business of losing money. Stuff like soldering irons, computers, or anything "of the trade" is not something I'd consider charging a customer for. Unless there was a specialty item I would have no need / want for otherwise.

 

As it is, my buddy also wants me to program a few of these for him as well. So he's going to build the test / burn jig himself, and eat the cost. Which admittedly baring labor would not cost too much. A few LEDs, an adjustable / in range voltage source - to test the ADC, and a DIP-20 ZIF socket or three . . . PCB board, and actually he'll probably use one of the proto boards he had designed for the beaglebone. Because they're handy

 

So, if they purchase the MCU's themselves, that will be no out of pocket costs for myself, and no need for a setup fee or similar. Which is starting to sound like an estimation of an hourly fee to me. Plus whatever I think my code is worth per MCU. Which may be non existent if I charge a good hourly fee. Since they'll have no access to the code anyhow.

 

EDIT:

 

So, an added bonus for not charging for my code is that they're not purchasing my code, and only paying for my technical expertise. Which hopefully means they have no claim to my software IP.

[zeke 693]

@@yyrkoon

 

I've been self employed since 2005. I could tell you my stories.

 

For me, the answer to this question is the most important: What do I want?  My answers typically cover the range from selfish to selfless.

 

The latest craze amongst the self-employed is value based pricing. It's a tricky thing to pull off if you haven't got lots of experience writing proposals and contracts. I haven't done it myself. I usually just charge a high fee.

 

Here's a copy-paste of my Project Assessment Agreement that I give to all new prospective clients. This is my tool to figure out if the work is worth the effort required.

 

=======

Project Assessment Agreement

The purpose of the project assessment agreement is to equally establish expectations of both you (the client) and Nine Micron Inc.

 

Minimum deposit is $1000 which covers the first four hours payable in advance.

 

Work will continue to a maximum of eight hours which caps the assessment fee at $2000.

 

If the assessment takes the full eight hours then the fee is due upon delivery of the report.

 

Work proceeds when all necessary information is provided or otherwise obtained.

 

The assessment phase will result in:

1. A summary of the problems at hand,
2. A description of all possible solutions and,
3. An assessment of the risks and rewards of each possible solution.

Process Flow Steps:

1. Define the objective.
2. List out all possible successful solutions.
3. Decide which solution to use. Explain why that choice is the best one.
4. Test the solution and collect data to prove that the solution is in fact successful.

=========

 

Another benefit of this tool is to weed out the people who will not value your services. It works well to reduce your initial risk and establishes that you are in control on the work effort.

 

 

Feel free to copy, edit, modify and use it too suit your needs.

 

I hope it helps even a little bit.

 

 

 

[yyrkoon 250]

@@zeke

 

So I have a question that I have to ask. $250 / hr ? I charge $50 / hr for a flat hourly rate. Minimum 1 hour. So, if you do not mind answering . .  why so much ? No judgment here, I'm just curious why.

[greeeg 460]

From @@zeke's wording of the agreement it sounds like it's more an initial consultation fee.

 

Taking on new projects is tricky, and in his own words

 

Another benefit of this tool is to weed out the people who will not value your services. It works well to reduce your initial risk and establishes that you are in control on the work effort.

 

Of course you need to uphold the value of your services in the work output you present

[yyrkoon 250]

I think I'd rather hear if from the "horses mouth". As I can think of several possibilities as to why<whatever>, but it's the <what have i not thought about> that I'm looking for.

[zeke 693]

@@yyrkoon

 

The price all depends upon the situation. If the person gives me the vibe that they are a risk of not paying then the price is high.

 

I want them to know that I am a Professional Engineer.

 

I've been burned in the past by someone who contacted me via this website. I was not paid for 12 hours of my time. I have chosen to never let that happen again. 

 

For my own reasons, I have not revealed that person's identity to the rest of this community because I believe that they are not a regular here. They know how much of a flake they are. They don't need me to shout it from this rooftop. 

 

I honestly hope they never come back to this website ever again. 

?_? 

 

 

 

On the topic of the price, here are my thoughts. I have an initial one hour phone conversation with the person and make an initial assessment of the scope of work. I figure out these things:

1. Do I have all the resources needed to solve this person's problem?
2. Do I have the skills to solve this person's problem?
3. Do I have the time to solve this person's problem?
4. Does the person have the time to wait for my solution?
5. Does this person have the authority to solve this problem for him?
6. Does this person have the money to pay for my solution?
7. What does the solution look like?
8. Where can compromises be made in the solution?
9. Can logical milestones be found for the work deliverables?

Essentially, what are the risks and rewards for both parties in this work effort?

 

If the time required to complete the project is long then I can afford to lower the hourly rate. If the time is short to complete then I usually increase the price somewhat.

 

Depending upon the relationship that develops between both parties, the payment style can be established i.e.: Lump Sum vs Hourly vs Value Based.

 

If is my opinion that the best example of Value Based pricing is where I create a solution for a client then sell that client many units. In that case, I retain the ownership of the IP.

 

In the case of Lump Sum or Hourly pricing, it is my belief that the customer has a right to ask for ownership of the IP. That IP must be paid for though. There is a lot of wiggle room in this instance i.e.: How much of the IP and how much you charge for it is up for discussion. You have control over what is on the negotiating table.

 

 

The Project Assessment Agreement is my way of initially building trust between two trustworthy parties. It's my way of saying "This is what I am thinking. If you are thinking the same thing then we can do business together. If not then please go away in peace."

 

After the PAA has been completed, a formal contract must be written before the work on the complete project can commence. 

 

The formal contract will spell everything out in gloriously, painful detail so that both parties are keenly aware of the expectations they have agreed to meet.

 

Does that answer the question?

 

By the way, this is a good discussion. I like it.

 

 

 

[dubnet 238]

Having been at this for over 20 years I have found that setting a rate can be part art, part science.  Obviously it depends on a lot of factors (e.g. type of market, competitors, value delivered, customer perception of value delivered, etc.). Like @@Fmilburn mentioned in an earlier post, in the end the rate needs to strike a fair balance between the buyer and seller.

 

Long ago I had an acquaintance who provided similar services to mine. He constantly complained about mistreatment/disrespect from his customers, with a good number who hadn't paid him.  His rate was less than half of what I charged. When he asked what he could do about it I advised him to significantly increase his rate which would do two things. It would scare off the customers looking for the lowest possible cost (the same ones that didn't pay and typically were the most problematic/difficult customers). It would also create a perception of value with the remaining customers as long as he was delivering value commensurate with his rate.  Unfortunately, he didn't heed the advice. His business faltered and he now works for someone else.

 

One of the things I have done in the past, if entering a new market, is to assess what competitors that provide similar services as we do charge for their services. Provided there are enough of them in the market to yield enough data points to be meaningful, I can position our services at a price point that reflects both the marketplace as well as the unique value we provide in the context of that marketplace. However, in the end I probably still don't charge enough.

 

One caveat though, after looking at the market rate, is if all your competitors are living in the back of their vans your cost structure may kill you.  Even after arriving at a market rate you still have to look at all your costs, both hard costs and your time. I have found that doing a post mortem on projects, where you have tracked every minute of your time (billable and non billable), can be a real eye opener in terms of your "real" (now diluted) hourly rate.  With this information you can determine if what you are providing to the market will be truly fruitful to you or not.

[yyrkoon 250]

@@dubnet

 

Yeah, I totally get the no respect part as perception of how much we're being paid. It's not happened to me yet. But it's always been on my mind.

 

@@zeke

 

I'll have to reread your post again after the morning cobwebs clear But I do get much of your post, and you actually mention several reasons that were on my mind it seems. Again I'll have to reread.

 

@ everyone

 

By the way, I've been self deployed since around 2003. But doing different things. For a long time I was getting paid $50 / hr as a PC security consultant. Which is a fancy way of saying I removed viruses from Windows machines . . . But all my tools were written by me, and I'd often write custom tools on a job per job basis as I ran into new security threats. .NET made this really easy

[Rickta59 589]

... By the way, I've been self deployed since around 2003. ...

 

: ) Is that what it means when one moves to AZ?

[yyrkoon 250]

: ) Is that what it means when one moves to AZ?

Why not, if that's what you want it to mean. Regardless I get paid by contracting work from other parties, while working for no one but myself.

[Rickta59 589]

I mean the use of deployed vs employed