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Why are Businesses Willing to Spend More for Software?
"I recently had a the chance to bid on a contract, which I didn't win because of my estimated project cost. The winner of the bid had an estimated cost of $15,000 whereas my estimated cost was around $5,000 for the same project. The contract was not a complex project: a system comprised of database-generated web pages, with file submission and minor document management features.
I had, in about 8 hours of preliminary work, 50% of the website and associated back-end completed and had the rest of the site roughed out for what they wanted. The work is simple and I think almost anyone who has done similar types of site designs would agree with me.
The reason I got for not winning the project was that my proposed bid was seen as too low.
Does this make any kind of sense to anyone? Why would a company prefer to spend $15,000 on a project instead of $5,000."
having evaluated bids like this a lot, i'll have to put "evaluated" in quotes. you don't have time to really go in depth and really check out each bid. if you get five bids, one is for $100,000, one if for $1,000, and the other three are for $10,000, that makes it an easy first cut down to the middle 3, because obviously the 100K people are insanely out of our budget, and the 1K people are obviously missing something.
this is how most government contracts work. ignore the high bidder, ignore the low bidder, and hope for the best when you pick one of the middles at near-random. you just don't have time to be thorough when you evaluate a bunch of bids.
MORTAR COMBAT!
Possible reasons:
1) You appeared amatuerish. Cheap often *does* mean its a little bloke sitting alone in a room hacking out stuff. There no guarantee you might just get bored and fuck off.
2) Did they offer more? Putting in extra features, and charging for them, is commonplace.
3) Are you sure you actually lost on price? Was their bid of a higher quality, and you were fobbed off with the price as an excuse?
4) Did they offer support? Updates? Full IP/Copyright? Training? Sort of comes in with number 2..
Cheaper does not always mean 'the same thing at a lower price'. Theres a reason for the 'cheap and cheerful', and 'you get what you pay for' adages after all.
http://twitter.com/onion2k
Firstly, you assume that the client was honest with you when he told you that you lost the job because your price was too low. A lot of times clients will say that to small contractors in an attempt to avoid hurting their feelings when really, the reason is that they don't think you're good enough to do a good job, and THAT'S why you're charging too little. You have to know your market. If you went shopping for (say) a wedding ring, and some guy offered you a perfectly beautiful ring for 1/3 what they were selling elsewhere, what's the first thing you would do ? Run off and have it appraised, because YOU would be sitting there wondering what was wrong with it. Businesses are no different, except there is no appraiser for software.
There's also psychological data that shows that people tend to hold dear those things that they have invested more in. Social psychologists have demonstrated that an excellent way to increase someone's opinion of you is to get THEM to do something for YOU, and often times the more onerous the task, the higher the resulting opinion. One interpretation is that they internally conclude they must like you more, in order to explain to themselves why they would do something difficult for you. Conversely, if something comes easily, it won't be valued as much, and people know this at some level.
My firm does Landscape Architecture, Land Planning, and Architectural Visualization. We run into the same thing all the time. Because we're much smaller and leaner, we can generally offer better service, better product, at a MUCH lower cost than larger firms.
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The catch-22 of the whole thing is that the client will bitch about how much money you're costing them . . . then you'll hear through back channels at the end of the project that they aren't happy because they don't think they paid enough for the high quality product they got.
I've got untold colleagues in other professions who have had essentially the same experience. I think it boils down to this - people want to feel violated. There's a mindset of "if it doesn't hurt, it can't be good" . .
just2cents.
anything i tell you will cloud your opinion.
If I go out and charge $20/h to do consulting, I can't get any business, but if I go and charge $200/h, I can get a fair bit of businesness!
This is CRAZY!
What I get from customers is that those who charge more most have something more to deliver because they charge so much. It is the same stupidity that means a person in a three-piece well-fitting suit can open a bank account with obviously bogus ID, while a hippy with lots of good and valid ID gets the runarround.
If things look rich, then people, especially business people tend to trust them more than things that don't look rich. This is a major flaw in the only society I am familar with, North American Society.
ttyl
Farrell
CAN-CON 2019 - Ottawa's only book oriented Science Fiction Convention! October 18-20, Sheraton Hotel, Ottawa, Canada h
When shit fucks up, whoever commissioned it wants to be able to use the excuse, "But, I paid good money for this!"
You can't pass the buck when there's no buck. Why do you think CTOs love MS and are scared of OS? Because you can't say that you spent top dollar unless you do spend top dollar. It divests the commissioning employer from having to be held accountable if your work sucks; if they went for your contract, the dude above him could easily say "Well, of course it fucked up, you didn't spend a shitload of money on it."
The fact that theres little correlation between price and quality has little to do with the fact that its way easier to be unaccountable for a project if you pay a premium price. Its totally backwards, but hey, so's this continent, so just think of it as being a neccessary bit of stupidity for consistancy's sake.
(BTW, this is why its so hard to break into new markets using price as a differentiator. Yet another example of how classical free market economics don't exactly model the real world. When you are a newcomer to an industry, its hard to undercut the competition using price because people don't want to be left in a situation where they have to explain to their senior manager that the reason shit fucked up was that they went for a bargain.)
"Old man yells at systemd"
Quite some time ago now a company a friend worked for needed a small system writing. It was a mid-sized company, still 10's of $millions turnover.
:)
I wrote a demo, spec, etc. and put a bid in. They thought it was good so I had a meeting with the IT Director. He was happy with what I was planning but he questioned how much I was charging - at the time I thought it was a bit expensive, however, I was shocked when he said he thought it was too low! In fact I ended up charging 400% of my original estimate! They paid up, I was happy
Why, I don't know. Maybe my outsourced development was making their in house development and IT work seem overly expensive. Happy to take the wonga though.
Paul Everitt (Zope/Digital Creations) spoke in Colorado about 2 years ago at a Linux conference. Zope Corporations was preparing to bid on a large contract for a national news organization, and they ran their proposal past one of the board members who was a VC and familiar with the market and with Zope Corp's abilities. He told them it was all fine but they needed to double their bid price in order to be taken seriously. Paul told him they would be making a nice profit at the bid price they had settled on, and the VC told him that they would never get the contract if they didn't double their bid price, because the client wouldn't take them seriously. They doubled the bid price and still came in under all almost all the other bidders and got the contract.
this is getting old and so are you
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