Good afternoon, Rodinhooders.
I’m in need of some advice from fellow Rodinhooders on very critical aspect of our business.
We’re running a web design and development company in Surat, Gujarat. We’re a team of 10 people. So far, we’ve good client base, ranging from small business to some big companies. Majority of our existing clients are from outside India.
There are different type of clients, we end up working at the end of the day.
1) New Client – We finalize requirements, budget and time-frame for his work and our developers are engaged for particular period of time till project gets complete.
2) Regular Client
- Type A — He comes up with requirements (new work, maintenance, enhancement) regularly, we schedule the work immediately. Sometime we work on emergency tasks in late night. We’ve fixed hourly rate. We maintain worksheet and send it to him after a month end. On and average, our developer work half of the month for him.
- Type B — He comes up with requirements (new work, maintenance, enhancement) once every 2 months, ask for estimation in hours, once approved, we schedule the work based on developer’s availability. We’ve fixed hourly rate. On and average, our developer work 10 days every 2 months for him.
- Type C — He comes up with requirements (new work, maintenance, enhancement) twice / thrice per month or every 2 months, ask for estimation in hours, bargain sometime and once approved, we schedule the work based on developer’s availability. On and average, our developer work 4 / 5 days per month for him.
- Type D — He comes up with requirements (new work, maintenance, enhancement) twice / thrice per month, we schedule the work based on developer’s availability. We’ve fixed hourly rate. We maintain worksheet and send it to him after a month end. On and average, our developer work 1 / 2 days per month for him.
These regular clients are providing us work since long time. But as you see, Type C and Type D are hardly contributing to our overall business revenue and normally we end up taking extra pressure to schedule and deliver the work. Sometime one developer need to work on 2 or 3 projects in a day.
All these clients are paying us by different hourly rate. We need to make some strong decisions soon to make sure we only deal with good clients in term of revenue generation.
1) Type A client is good in term of providing continuous work, but developer works for half month and that lead us to schedule some another work for developer for rest of the time. Should I ask this client to hire dedicated developer and pay us fix amount per month irrespective of work? By this agreement, we might end up doing less / more work per month than the amount we’re getting. But I don’t know, if client will agree with it or not as his work is not engaging developer for whole month. How do I handle this? Is it fine to increase per hour rate?
2) How frequently we should be revising per hour rate with regular clients and how much? Do I need to make agreement with them to revise rate every year or every 6 months?
3) What should be the decision making criteria to finalize per hour rate for different regular clients?
3) Should we stop working for Type C and Type D clients?
4) Because of work from these regular clients and having a small team, sometime work of new clients get affected. How to deal with it?
Thank You
Nilesh Gamit, nilesh@lamp-technologies.com
Updates: Nov 24, 2014
I found nice article on calculating per hour rate. Seems good enough to start with. How to Calculate Hourly Freelance Rates for Web Design, Development Work
Alok Rodinhood Kejriwal
Don’t do hourly work. Do project based costing. Else you will always suffer unless you are contracted all year long.
Learn from Software Companies entrepreneurs who have become Billionaires
Nilesh Gamit
Thanks Alok. It’s a valuable advice. I’ll discuss this with my business partner.
vishal
Hi,
I would suggest that if company is at growing stage then company should be thinking of building larger client base irrespective of each client’s revenue generation contribution because these type c and type d clients will in turn help company grow either via future business/repeated business and also via word of mouth/referral.
Coming to handling pressure of dealing with world load then I would suggest that for type c and type d, if possible then one can outsource the same and that’s how you can have better control between good clients and avg clients.
Last but not the least, about costing method, it would be better to milestone based costing.
All the very best 🙂
Ashish Katkar
Dear Nilesh,
My 2 cents:
Any business needs anchor customers around whom you can build and grow your company. Your Type A customers are the most probable ones in the current stage.
Do few things for your Type A customers:
1. Move from hourly model to monthly model. One of the major concerns clients have with this model is resource utilization levels. Build a “Idle Time Utilization” strategy for these customers by discussing on various tasks that can be taken up if there is any free time during the month. The tasks should be the ones that deliver productive outcome from customers perspective in a immediate or medium term basis. Deliver more than what is being promised.
2. Once the monthly model starts working fine take the next step. Move from monthly engagement model to long term (Quarterly or 6 monthly model) annuity model. Offer SOPS like service credits for committing to long term contracts. Make strategic investment (e.g. deploying non-billable resource) from your side to showcase commitment. Explore your and clients readiness for outcome based model.
Now to answer your questions:
Question 2 : Ideally the period should be 1 year.
Question 3 : There is no golden rule to finalize the rate card for clients. Always keep in mind the minimum margin that you would like to have for these deals and never go below it until and unless it is strategic one. Rate card should be such that it rewards customers that give long term and continuous business. Use volume discount strategy. This could mean service credit or effective discount on rate card depending on client.
Question 4 : Do not stop working with Type C & D. First find out amount these client who has potential to be your anchor client? Start delivering more than what is expected for these clients. Then motivate them to move onto a monthly model. Give them tangible enough reasons to do that. See how many move – refine the strategy. Then based on outcome, take a decision on which client is worth keeping.
Question 5 : Always have a buffer of 1 or 2 (or even more depending on size of company) resources to take up new clients. In services business, you will have to maintain that if you have aspirations to grow. Fix up your rate card keeping this cost in mind. In case they are not being utilized, see what value add initiatives you can deliver for Type A clients. Identify an innovation that can lessen their pain and deliver it. Don’t charge for it.
Feel free to reach me in case you want to detail out any specific points. I have been in B2B services business for last 15 years and running a start-up Verinite for last 3 years.
Regards – Ashish
Nilesh Gamit
Dear Ashish
It’s really some valuable advice. Appreciate it. I’ll go through it in details and let you know if we’ve any related queries.
Thanks & Regards
Nilesh
Nilesh Gamit
Hi Vishal
Thanks for your input. I’ll surly keep this in mind.
Thanks & Regards
Nilesh