How much should a development hour cost?
Howdy! This is the 2nd entry in our series of posts about pricing software development services. We try to give you market data, underline common industry problems, share some good practices and help you sell more. Today we will try to answer the eternal question: how much should an hour of your time cost?
Why time-based pricing is great
One thing we constantly underline (and don't plan to stop) is that software development is complex. You know this as well was we do. Defining the scope of a big IT project upfront in full is extremely hard, which often renders fixed pricing inadequate. Too many vectors simply cannot be taken into account without amazing luck or downright sorcery and psychic abilities.
A great example can be found in Denver, at the International Airport - specifically in its luggage handling system. Back in the iconic 90s, the city of decided to build a new airport to accommodate an increased amount of people flying in. Part of the new airport project was an automated baggage handling system that would reduce flight turnaround time by 30 minutes. Easier said than done.
The baggage system alone delayed the opening of the airport by 16 months, and cost the city of Denver $1.1 million *daily*. A sort-of-working release was made years after, but never fully functional. in 2005, the whole thing was scraped in shame. History is full of such examples.
Pricing your services based on actual working time is one of the solutions to the problem Denver airport officials encountered. That's awesome. We all know it, but the question is: how much should an hour of your or your team's time even cost?
Your end price should be the result of the billable hour multiplier - not the other way round!
Never the opposite way!
A serious and shockingly popular mistake is treating working hours as a data point only for the customer. Some people eyeball a project, spew a general estimate (usually overpriced to account for potential issues) and then divide it by a vague number to receive hourly price. The purpose of such estimates is purely to make the cost seem educated and easier to digest for the end customer. They do not hold any other value.
Truth is, accurate price of your time is also great for you. Even casting morals aside (you will never overcharge the customer), it will allow you to easily scale each project and your own company. Be it permanent employment or contract-based work, you will be able to easily predict and plan scope changes when adding or subtracting hands from a given project.
Competetive prices based on market data also shield you from inflation and make it easier to adjust towards it. It's extremely hard to always keep all economic factors at bay, and human minds are built to love repetition and patterns. When quoting off the top of your head , you will tend to fall towards familiar figures, not always reflecting when and how should they grow.
Okay, but how much should 1 hour actually be?
As with most hard questions in life, this one can only be answered shortly with an unsatisfying: it depends.
Obviously, there are a myriad of data points to consider. Most importantly:
- The country and city you're operating in
- Competitors and their prices
- Exact type of work (ex. mobile vs embedded)
- Business costs (taxes, office, accounting, etc)
- Currencies (if any exchange is needed)
- The team you're having or getting. Juniors will always be cheaper than venerable veterans.
Shortly speaking: you will need to adjust for all these factors.
On average, a development hour sits anywhere between $75 to $200 for US-based companies. Thins get considerably cheaper when done overseas: according to DAX, most regions of the world are 50% cheaper upfront. Africa and Asia are slightly cheaper than Europe and South America, but generally you're looking at between $20 to $70. Eastern Peak confirms the ballpark figures, adding distinction between more expensive Western Europe and cheaper Eastern Europe into the mix. Qubit Labs remarks that India is considerably cheaper than the rest of Asia. No matter where you look, most providers of such services, external experts and developers themselves seem to agree on the whereabouts of our figures below.
Man, these are some wide brackets!
If you're thinking this: you're right. The differences between minimum and maximum amount come specifically from the sheer number and importance of factors that might end up changing the actual price.
What we most often encounter and can genuinely recommend is to base where you are on the scale by the people at your disposal. Experienced, fast teams with no learning curve deserve the top-shelf pricing. Juniors, interns and freshly put together cohorts can probably justify much cheaper prices for the end customer.
Hourly rates in our tool
Apropo.io is a tool that helps you create detailed, good-looking proposals 4x faster than now. All proposals are based on hourly rates you enter manually or import from an Excel file. With time, automatic estimates will appear, based on your past proposals and market data (the latter coming soon).
Often usefulness lies in the simple. Automatic sums of your hourly rates are definitely something Excel can do. Having them in a tool that enables fast sharing and records the customer's reaction is a different story. If you're interested, visit apropo.io to learn more or start a 14-day free trial.
As with most economic and business advice, the exact values depend greatly on a number of external aspects and you will need to adjust the estimates to your resources and needs. However, with the short overview above, you should have a pretty good idea of what market rates your region holds and how this translates to developers and their seniority.
And what about YOU? How much do you usually charge per hour? Let us know in the comments below!
Stay tuned for the next time!
In the next posts, we will focus on estimates & billing creative work.
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