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Do you pay development shops by the hour or by the task?

It's challenging to deal with dev shops, especially as the estimate they give you for work you send them, ends up always being too low and they try to charge you more. How do you deal with this? Do you pay by the hour and trust their hours-spent reports? Or do you pay them by the task, regardless of hours taken? OR how else?

34 Replies

Asad Shaikh
0
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Asad Shaikh Entrepreneur
AWS/NoSQL/Big Data Architect at Capital One
I have paid hourly and that did not work well at all. Before you hire, make sure tasks are clear and ask to bid on those tasks. Also, encourage bidders to ask questions.
Patrick O'Leary
4
0
Patrick O'Leary Entrepreneur
Helping digital media companies "sell smarter to get their unfair share of the budget"
One way to mitigate this is to pay time & materials for the requirements and/or design, then ask for a fixed price estimate for build & test. This may be tedious on small items but absolutely works for larger features and projects.
Rich Guess
1
0
Rich Guess Entrepreneur
IT Leadership, Product Management and Design, Music
If your app is well defined and you can really get to the task level, an estimate could be accurate.

If you are working an MVP, take the approach above and include a maximum budget and specific handling for change controls.

George Lambert
0
0
George Lambert Advisor
Interim CTO - CTO's for Hire
Always try to do by the project.
Lane Campbell
0
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Lane Campbell Advisor
Lifelong Entrepreneur
Really depends on how big you are and how much you understand about the process of building software. Fixed costs for development projects must be accompanied by a fixed scope. If you aren't certain about the features you want then you can't expect the development agency to do a project at a fixed cost.

Frankly, find a technical co-founder and avoid the drama of burning capital getting poor results. It's hard to do but if the idea is strong you'll attract great people to it. In the end I think it will be worth it.
Peter Bray
1
0
Peter Bray Entrepreneur • Advisor
CEO at Bray & Co
Pay by project. Flat fee, to an agreed scope
James Kies
6
0
James Kies Advisor
Agile Coach, Scrum Trainer, Full Stack Developer
I really prefer scrum. Build the most important things first. Pay weekly. Pay for results. By week 2 or 3 you should really start to have a strong release build and even if you only get 1/2 way before you run out of money, you have done the most important 1/2 to a great quality and have a bad arse launch no matter what! If you don't get a great immediate result, but really like the people let them start over. Doing the first 10% a few times is way better in the long run than doing the last 10% a few times. High fives of awesome, -J
Animesh Srivastava
1
0
Animesh Srivastava Entrepreneur
Co-Founder, Ajani Infotech
Hi Lornezo, I have been on both sides of the table so let me present this from both perspective. As a provider, I have seen clients who were not sure about the requirements and features changed midway during the project execution. Some of them understand the cost escalation if changes are introduced halfway through the project, some don't. As a client, I have seen hours-spent reports where the bloat is too obvious. Being a developer gives me a fair idea of how much time a particular task should take for a given level of experienced dev. My view is - make your tasks well defined and ask for a fixed cost project. Any worthy dev-shop would agree to fixed cost project if the task is well defined and no significant changes are introduced midway. Even larger projects can be broken down into smaller units of well defined tasks, each with a fixed cost. If you are going with hours-spent report, then having a technical advisor by your side will help you in going through those reports for bloats. Thanks, Animesh.
Darpan Dhamija
1
0
Darpan Dhamija Entrepreneur
Sr. Software Engineer at VMware
What I have seen to work the best is, to break down the project into features and use different dev shops to develop different features and finally integrate either yourself or get it done by another dev shop.
This way you get cheaper/less important feature develop in cheap.
Another thing, that even I have done before is, find a local person who controls the dev overseas, helps mitigate a lot of your problems. I used to have my own startup to provide resources like you desire and did the project management from here with face to face meetings with clients. Under the hood, I had my own devs and many more dev shops I had personal relations with. Helped me distribute my workload and handle multiple projects at the same time and clients were happy meeting me and not spending odd hours as per devs' timezone as all that was handled by me.
I always integrated all the features myself before delivery ensuring quality of the final product. I don't do it anymore, but I do know a few friends who have this model running.
Try to find such devs, let go of some control over devs as devs perform better with less management, have more control over product instead. If you are not technically that sound, hire a person who is, it'll help you immensely.
just my 2 cents.
Ajay Agrawal
1
0
Ajay Agrawal Entrepreneur
CEO, N K Technologies

We are a New Delhi, India based bespoke software and solution provider with a focus on ERP, Supply Chain Management and Warehouse Management for several domains.

We approach this issue slightly differently.

We encourage our customers to define their business processes and then grade (on a scale of 1 to 10 where 1 is the minimum and 10 is the maximum) these business processes according to the pain they cause in their business (in the absence of appropriate software) and the reports that could be helpful to them in mitigating these pain points.

Our costing team creates a matrix defining each business process and the estimated time with the associated cost. Our team also defines the business processes which would be pre-requisites for the subsequent processes.

This methodology enables our customers (and us) to have a sign-off sheet and a fixed cost contract so that both of us know what is being paid for, and how much and when. During the execution of the project (or afterwards), in case any additional requirements come up, we quote a per hour cost. While estimating the time for these changes, we also give a 'Not to exceed' cost for the approval of the customer.

This approach eliminates the uncertainty for both - our customer and us. The biggest benefit of this approach also is that the customer need not necessarily have a technical co-founder. Effectively, we are part of their team without them having to dilute their equity.

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