How do you bill for software development?

[shifty_uk]

It would be good to pick some brains on this as I'm sure there must be a few of you that are familiar with software development either through your own contracts or your employer.

I run a growing development company, we have a combination of projects of varying sizes, retainer contracts and ad hoc work from our existing base which is continually being serviced.

Retainers and ad hoc work are easy, what's challenging is managing and billing the projects.

I've made huge mistakes in the past with fixed cost builds(albeit well scoped) that have cost me dearly as things go wrong out with our control or extras are thrown into the mix and expected - "I know you're at a loss over the project because of my bad data but you gave me a fixed price"

Now we're at a stage where granular scopes are provided with estimates which are split on key milestones, typically billed at 50/25/25 or 25/25/25/25 depending on how large the project is.

The problem with the latter is of course the agile nature of development and how long it takes on sign off/waiting on various components from the customers. There are also frequent delays with invoices being paid, more so throughout the pandemic.

My question is, how do others operate their billing periods for professional services?

I haven't yet tested the waters with a small upfront deposit followed by monthly/more frequent invoices for hours used - to me, this would ensure complete buy in from the customer and cover our time allowing flexibility of my team to move onto other work if there are customers who are dragging their heels.

Thoughts?

 

[shifty_uk]

Thanks for the input here guys, some valuable advice; you've pretty much validated what I'm moving to but some good points.

Doesn't work with agile methodologies does it? Not unless you bastardise it to the point of being useless.


If you do truly work agile, then I would aim for T&M with a loose upfront estimate. Everybody wins really....suddenly everyone is motivated to get things done promptly.

The problem with this is sign off. From small businesses to enterprise level customers, they all require what they perceive as bullet proof estimates but things change, issues arise.

My takeaway from some of the points here is to simply be stricter on the milestone payment terms and scope creep.

And don't be affraid to employ a debt collection agency (I have to great effect) who will then chase for you and do the court paperwork if it gets that far you can then charge the customer for the debt collection too.

I'm thinking about adopting a soft suspension of services(for example application access) or full on project delays. Haven't had to take it a step further yet but noted, thanks.

• T&M based contract with initial estimates. This protects the supplier a bit in terms of not being left trying to finish something that has overrun for no benefit, although the client will likely want a fairly robust plan with milestones etc to ensure they aren't getting taken for a ride.
• Small scoping/pilot SOW to really understand what is required which then leads to a more well defined fixed price contract (i.e. once you have a better idea of the work involved so can give a more informed estimate). I guess to use your nomenclature above this is more like a 10/30/30/30 sort of milestone basis with the 10 being the initial scoping work

I'm leaning more towards your first point. Fixed pricing has near killed me in the past. The estimation element is key.