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The Hidden Costs of Low Quote Dev Shops: Overbooking

Sometimes, selecting an app development shop is like buying a plane ticket. At first, a lower price can be appealing, until you realize the airline has to make its money somewhere, and it’ll probably be a nasty surprise. Much of the time that comes from opaque baggage fees, convenience fees, upgrades, overbooking, and simply cutting corners on quality.

Many of those issues also appear in working with low quote dev shops. Let’s consider ‘overbooking.’

Many low-bid dev shops will hire developers (often overseas) and pay them a flat salary. Unfortunately, this incentivizes taking on more projects than is reasonable to pressure employees into working long hours so they can pay salaries and make a profit at the same time. Let’s look at an example.

The nasty surprises

Suppose a dev shop pays a developer $50,000 a year—less than half what you would normally pay for a domestic US developer. If they charge clients $25/hour for that developer, then 40 hours a week will allow them to break even for that developer. It follows that the way to profit off that developer is to get them to work more than 40 hours a week. The incentive, then, is to put that developer on as many projects as possible, so they’re working as many hours as possible. In this example, for every 10 hours a week over 40, the dev shop will make an additional ~$12,000 a year.

We at Thryv see this a lot when we’re rescuing projects that have gone off the rails. It’s not that overseas developers are worse than domestic ones, it’s that anyone who’s working 100 hours a week is going to make mistakes. The code will be ugly, poorly organized, and fragile just because whoever was working on it had ten other projects to get to. It’s unreasonable to expect that sort of code to be usable long term, and for startups lured in by the low price, this kind of mistake can have devastating consequences when it’s used as a foundation for the company.

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Fixed Price vs. Time and Materials

When shopping around for an app, many entrepreneurs balk at trying to do things under a Time and Materials (T&M) agreement. After all, how can you make sure your app stays within budget?

Unfortunately, fixed price projects often end up costing more money than T&M. This often comes from one root cause: fixed price projects rarely end up being fixed scope. Whether it’s because something important was entirely forgotten or simply needs to be changed, projects of any kind are almost never perfectly planned from the beginning. This has a couple of consequences.

Consequences of Changing “Fixed Prices”

First, when something needs to change, you may need to recalculate the quote, sign a new SoW, or renegotiate the contract entirely. As we all know, lawyers aren’t cheap, and even if you don’t need legal help to adjust the contract, you’ll still be wasting valuable time.

Second, any contractor who’s done more than one project knows that uncertainty is a part of the job. This is often built into the fixed price quote given, so even if the project does go perfectly to plan or even just under budget, the client never sees that benefit. The best companies I know always try to under-promise and over-deliver, but a fixed price means that even if they’re weeks ahead of schedule, the client sees no change in the cost.

T&M projects avoid both these pitfalls. Change is easy to manage when you’re simply paying for an expert’s time, and if the project is done early, the client will reap the rewards.

But what about when the project drags on and on? Often, the whole reason clients look for fixed price quotes in the first place is to try to cap costs incurred due to the contracting company making mistakes. So what happens when a project goes off the rails?

Unfortunately, in most cases, fixing the price won’t protect against going over budget. Let’s look at an example.

Suppose a client engages a company for a fixed price app outside its regular expertise, and, for simplicity’s sake, it’s 50% up front and 50% when it’s delivered, with weekly product demos over 12 weeks. Week one comes and goes, and the company has nothing to show for their work due to ‘unexpected difficulties.’ The following week, they’re able to show a very rudimentary prototype of week one’s tasks. In the third week demo not much has changed in the prototype, but they assure the client that they’re ‘making progress.’ At the end of the fourth week, they tell the client that it’ll probably take 24 weeks rather than 12.

What can the client do? They’ve paid for 6 weeks of a 12 week project, but now the quote has doubled. It’s clear the company is in over their heads, but they probably aren’t willing to stick to the original price, and obviously not the original timeline. The choices are grim: pay double what was expected—for what may very well prove to be a shoddy product— or, start fresh with a different company and a loss of 50%, or sue.

If, on the other hand, the project were T&M paid bi-weekly, at the end of the fourth week when the client gets hit with the updated timeline, they’d only be down a sixth of the cost. With T&M, you’re able to minimize your losses should something go wrong.

Why Thryv

This is why we at Thryv rarely recommend a fixed price contract. T&M allows us (or any provider) to give you maximum flexibility while keeping costs low and, ultimately, minimizing risk. The next time you go looking for a quote, by all means ask for a cost estimate, but do yourself a favor and make sure you make the contract T&M.

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Should your app development be with an independent contractor?

Getting a app written, tested and released is a challenging process. Your options are many. Let’s consider whether you should hire an independent contractor to write your app.

Reasons to hire an independent contractor:

  1. Low cost… you’re paying just one person, at whatever lowest rate you can negotiate.
  2. One person to deal with… communication is direct and efficient.

Reasons not to hire an independent contractor:

  1. You need an expert… but not for every line of code. The trouble is, you either hire high, or low. When you have easy, repetitive code, you just need a lower cost coder. But for knotty problems, experience breaks out of the box. With an independent contractor, you’re either paying too much for some parts of your code, or your programmer’s out of depth.
  2. Speed. If you need a fast release, or a fast update, you need a group of programmers to share the load.
  3. The back end, and the design. Finding one person who can provide an API to a server, and an artful UX-optimized interface, to say nothing of a solid app released for both iOS and Android—is a rare thing. If you don’t find that, then you’re no longer dealing with just one person anymore, regardless.

Solution

Consider a company like Thryv, where you’ll be assigned a project manager. Communication is direct and efficient.

Thryv has access to a range of talents. These will work on your project as variety of tasks demands. And you’ll be billed by a sliding scale that fits the skill and efforts of the contributors.