DATE: Jul 06, 2010
AUTHOR: Mike Bates
The enterprise e-commerce space is broadly varied, and the boundaries constantly shifting. Features and capabilities only available to huge players just 10 years ago are now more affordable and available to SMBs around the world.
Sometimes just using the term ‘enterprise e-commerce,’ however, can be difficult or misleading. Is enterprise e-commerce the right term to use for a company with 10,000 SKUs, doing a few million dollars a year in online sales? In the event that they manage their suppliers, inventory, warehouse, and fulfillment using an integrated system, for example, I would say yes — this counts as ‘enterprise e-commerce.’ Although clearly no Amazon or Zappos, these companies and their systems take it far beyond the simple eBay auction or basic storefront.
At HotWax Media, we provide enterprise e-commerce consulting services. Our core services are based around Apache OFBiz, but we regularly find ourselves integrating with 3rd party systems like NetSuite, Endicia, and many others. One day it could be SAP with multiple users, and the next day it could be QuickBooks piloted by the business owner herself. The very nature of an enterprise e-commerce system suggests that the consulting services can be quite different from one client to the next, and we have certainly found this to be true. We can find ourselves building systems that are similar in fundamental intent for companies whose revenues are separated by two orders of magnitude.
So the question comes up, what is the right way to go about pricing these services? Constructive Cost Model? (http://en.wikipedia.org/wiki/COCOMO) Probably not. Simple menu of services with some attention to psychology? That’s better because it is more easily understood by the client, but it is not always easy to do on our end.
In fact, when doing unique service projects, you might say that with a fixed price, someone always loses. Either the vendor pads the cost to cover any surprises, and he wins, or the vendor fails to anticipate (and build in money to cover) the surprises, and he loses. The only thing for certain is that those surprises will come up, and someone will have to pay for them.
The next option is straight hourly work. This should be great for the vendor, but can lead to problems of its own in terms of project and cost management. When vendors are working on a straight hourly arrangement, they have less incentive to plan. While the idea of paying the vendor for his time is fair and honest, hourly projects (that lack planning) can end up costing more than the customer originally planned, and the projects can look expensive in hindsight. When the project is complete, lacking adequate planning, the tendency is to look back and say “All they wanted was X and it cost them Y!?” The problem is that the curvy, flexible path made possible by the hourly arrangement is overlooked in that simple analysis. By the way, this happens all the time with contractors, attorneys, and everyone else who offers services for an hourly rate; it’s not just software developers.
So this brings me to my method of choice for pricing projects: fixed team project planning and pricing. This approach can allow for the best of both worlds. In practice this ends up looking a lot like phased pricing, except that the cost does not vary month to month (except by mutual agreement). Rather, the dedicated team comes at a predictable expense and works off of a well formed project plan. (The creation of the plan is paid work as well, and can be more or less detailed depending on the size of the project and the client’s preference.) Then, the flexibility that real life requires comes in the form of more or less work being completed in each month (or phase).
So we can say, “We have a list of 10 items. We can be very confident that we will complete 5 of them, somewhat confident that we will complete 7 of them, and only slightly confident that we will complete all 10 of them.” At the end of each month, we reassess our plan and make adjustments based team velocity and client priority, leveraging the things we have learned while working on the implementation.
In conclusion: we do a lot of deals each year, and our approach to pricing varies a bit job to job. But whenever possible, we like this fixed team approach. It gives the client and provider both a fair deal, and encourages all parties to plan responsibly. We encourage you to try it out; if you would like us to help you with your enterprise e-commerce project using our fixed team approach, give us a call today!