If the funnel lets the oil company make $1000 more, then they should be happy to pay $1000, minus some amount that makes it worth their while to bother at all... unless some other funnel maker will do it for less.
Cost price to value price is the range of viable prices (at which it's worth doing), the market should determine the final price (that a buyer and seller are prepared to agree on). Cheers, Chris On Wed, Mar 13, 2013 at 5:17 PM, Anthony Richardson <richo...@gmail.com> wrote: > It not about the value any programmer can add to a business. Its about the > value you as a specific person can add. > > Using your analogy > >> Put a bit primitively, it's like saying that the maker of a funnel should >> sell a funnel for $1 to a water supplier but $1000 to an oil company. I >> don't agree with that, really, even in the case of bespoke funnels. > > > The case for the oil company would we that they need a funnel that can be > used in extreme circumstances or volatile materials and you are a company > that is specially situated to engineer and create that very specific funnel. > > If you can provide specific skills that *ADD* value (not just implement > value specified by the client) then there is a case to charge for that > value. > > Cheers, > > Anthony Richardson > > On Wed, Mar 13, 2013 at 3:32 PM, Nicholas Faiz <nicholas.f...@gmail.com> > wrote: >> >> Hi Tom, >> >> I've only glanced at these articles but I think I understand the argument. >> I've even thought through it, a little bit, in the past. >> >> There are at least a couple of problems with this approach (if I've >> understood what you're suggesting correctly). >> >> The trouble with the idea of setting a rate based on the value you add to >> your customer's business income stream is that the case for it is only ever >> made for the case of making more money. The examples always seem to be about >> short term work meaning large value returns for clients. What about work >> that has longer payoff periods or can't easily be evaluated? >> >> The real issue I have with this method of charging clients, though, is >> that it loses its notion of market rates and a sense of objectivity. It's >> ostensibly about taking a fair cut from the value you add to a customer's >> business but, in reality, it confuses the work you do (writing code) with >> the work the business has done to create a financial structure that can >> profit from a computer program. I don't think the programmer deserves the >> latter profit cut unless they have built the business themselves. >> >> Put a bit primitively, it's like saying that the maker of a funnel should >> sell a funnel for $1 to a water supplier but $1000 to an oil company. I >> don't agree with that, really, even in the case of bespoke funnels. >> >> Again, you can always go for higher rates by showing that you bring >> something exceptional to the role. >> >> Cheers, >> Nicholas >> >> On Wednesday, March 13, 2013 1:24:11 PM UTC+11, Tom Allen wrote: >>> >>> I've only recently joined the group (and only recently started working >>> professionally with ruby), so I had to dig through the archives to read the >>> other responses. >>> >>> I've had a lot of discussions with game developers on this topic, as >>> they're also in the class of people who routinely undersell themselves. >>> Nicholas' post contains some great advice for cost-based pricing, but, >>> personally I think this is a terrible approach and you should aim for >>> value-based pricing instead. Two very smart and wealthier-than-most-of-us >>> people agree: >>> >>> Patrick McKenzie (patio11 on hackernews) - >>> http://www.kalzumeus.com/2012/01/23/salary-negotiation/ >>> and Ramit Sethi (the iwillteachyoutoberich.com guy) - >>> http://www.kalzumeus.com/2012/09/21/ramit-sethi-and-patrick-mckenzie-on-why-your-customers-would-be-happier-if-you-charged-more/ >>> >>> Both of these guys have some great blog/video content on value-pricing. >>> Put simply, work out how much your effort generates for your clients, and >>> charge a percentage of that. >>> >>> There's a few good reasons this works. First up, if your client already >>> knows the value you're likely to deliver and you can also work this out and >>> agree with them, it's much harder to underpay you. At the very least they'll >>> feel very guilty about paying you $75/hr for a 2% increase in conversions on >>> a $15M revenue application. If you can deliver that result, you're making >>> them near 2% of $15M year on year, and deserve a butt-load more than $75/hr. >>> Second, if you conclude that the value you're adding results in a billable >>> rate close enough to or below what you'd charge in a cost-based pricing >>> model, you've just learnt that your client's business isn't scalable. This >>> tells you, for example, not to discount your rate based on a possibility of >>> future work, because they'll probably go out of business soon enough. >>> Thirdly, you'll be better off if you only work for people who understand the >>> monetary value of your work. People who don't understand this hire people >>> who don't understand this. People who do understand it hire people who >>> don't, at very cheap rates, and people who do, at what they deserve. >>> >>> Two caveats with this. Firstly, I'm in full-time employment, so maybe my >>> advice is complete bullshit in the consulting world. I doubt this. Secondly, >>> to pull this off, you need to be very clear about your skills and ability to >>> deliver the value you calculate. At any rate, even if you don't buy my >>> argument, read those blog posts above for a more thorough look at this >>> stuff. >>> >>> Cheers, >>> Tom >> >> -- >> You received this message because you are subscribed to the Google Groups >> "Ruby or Rails Oceania" group. >> To unsubscribe from this group and stop receiving emails from it, send an >> email to rails-oceania+unsubscr...@googlegroups.com. >> To post to this group, send email to rails-oceania@googlegroups.com. >> Visit this group at http://groups.google.com/group/rails-oceania?hl=en. >> For more options, visit https://groups.google.com/groups/opt_out. >> >> > > > -- > You received this message because you are subscribed to the Google Groups > "Ruby or Rails Oceania" group. > To unsubscribe from this group and stop receiving emails from it, send an > email to rails-oceania+unsubscr...@googlegroups.com. > To post to this group, send email to rails-oceania@googlegroups.com. > Visit this group at http://groups.google.com/group/rails-oceania?hl=en. > For more options, visit https://groups.google.com/groups/opt_out. > > -- You received this message because you are subscribed to the Google Groups "Ruby or Rails Oceania" group. 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