I am the owner of a web-development company. We develop custom CRM systems for our clients. Projects’ length vary from 2 months to a year. At the moment, we’re able to do 2 such projects at a time.
In theory, this should be quite profitable business - I pay my employees around 60-70% of what client pays. Remaining money should go for company development, taxes and my own expenses. This sounds pretty good in theory.
The actual situation is like that. I had 2 projects 4 months ago - one was successful and we continue with it now and it will last quite long. Relations with the client are excellent and he pays accurately. Another project is not so successful. They paid only 50% while the project is 95% finished. They prevent us from finishing by not giving enough information and don’t want to pay. But this is not about them, this is about the business. Thanks to the first client I could pay all the salary to my guys in time, pay bills and not to go into much debt (using credits). Currently that first client continues to support almost all the company. He gives enough money for all company while only 3 of 6 are working for him. This situation is possible because salaries are not really high.
However both my employees and I want to increase salaries, I want to expand my company and the specialists I need now cost here around $1000/month (I am in Ukraine).
The problem is that I cannot sell my employees for more than $1200/month to my clients. So when the salary is around 600-700 it’s OK, I can pay all my guys even if one of the clients doesn’t pay, but if I offer bigger salaries, I don’t have this option, I am not secured any more.
Here I come to the situation that I cannot afford more good specialists and without them I cannot expand the business. Another problem is that I can’t sell my developers for more that $1200/month.
So the questions are:
What is my problem? Is it selling skills? Is it little money I take from clients? We do quite competitive CRMs. The simplest one was the clone of insight.ly with around 30% more functionality and deeper google integration. It took more than 2 months for 2 developers to do it.
Or is it poor development process which is inefficient and we spend too much time where others spend less?
How and where can I learn where my mistakes are before I find myself without good employees and clients?
Or I should not be scared and be better at planning the income so I don’t need this security when I can pay my team even if another client does not pay?
Any ideas what I should change and where I am mistaken?
Noone in a western country would pick up the phone for this (I’m only slightly exagerrating)
Tell him to go somewhere else, but follow up with him as to how it went. Our best sales tool are other people stuffing up the clients project.
People here (NZ) easily pay 10-20 times that amount for something that replaces Freshbooks and fits like a glove (and if they have need, money and someone who can make a decision)
You need to figure out why they would pay this to someone locally and offer some of the benefits the local guy gives them, then you will be able to charge more.
You need to establish a better project management with clearer milestones and payments, so that you are not out of pocket so much. This is easier with more than 2 clients, you should have 1-2 big and 3-4 small to medium on the go at any one time.
I think your points are right. I have only something to add:
I think I’m focusing on quite good customers, this is the highest paying ones on freelance websites I’m getting jobs on. But I also agree with you that I might be charging too low. And, if so, I should be looking for better customers
However I think these are OK in terms of communication, staying within the scope etc.
I call my clients when I need them. Moreover, one of them is coming here from time to time for better communication. But I also agree with you that I should be more open to the clients and maybe call them on the project agreement stage also.
I have 5 employees and 2 big projects (big for us). I don’t want to deal with little projects because things are changing too fast then. And I also don’t want to deal with only one client at the moment because I need some security. And I agree with your point that I should not expand too fast, I am not going to do so. I don’t think I have experience to manage more projects/people effectively.
Yes, I should take English classes. And I have time for it, I am trying to improve the English I have listening to tech/business podcasts, communicating on forums and via calls with clients. But still I need lessons. I only can’t find good option for me because everything offered here does not include really good communication - teachers only know more words, but don’t have essentially better speech. So I think I should better practice with native speakers somehow, but I still have no ideas about the affordable and effective variants how to do it.
And one more question. In US or Canada the php developer can get around $3000-4000. This means employee should sell their time for around $7000-8000 in order to get profit and pay taxes for the salary, office expenses etc. Is that correct?
If it is, then how it is possible that when I say $7000 for 3 months and 2 developers it’s a lot for US customer? He agreed for this, but told I have almost the highest proposal.
How US business can offer better prices? If they can, then I must be doing something wrong - what exactly?
If your sitting back with 30-40% after you have paid your employees it sounds like your charging too little. We are normally sitting back with 70-80%.
In our case we need the overhead as an employee might have a few days with no work each month due to being in between projects. So if your having contracts for projects that go over X months for one or more employees, you can lower the price some since you have booked the employee for a longer time period, but I would still aim around 50% for the company. After all your paying for office rent, computer equipment, internet access etc.
In general I would assume your locating the “wrong” kind of customers at the moment; the kind that does not want to spend too much money on their projects. In addition you usually have more problems with these customers as well, in regards to demands, scope creep etc.
I am not sure how you communicate with your clients, if it is only by email/IM I would recommend that you start calling them as well. With skype or VoIP it cost nothing to call people in other parts of the world. When you rise your fees, the customers will start expecting that you will call them to discuss their issues/problems.
In addition perhaps your focus point at the moment is wrong, from the look of your posts it seems like you want to “employ” a lot of programmers and have a lot of projects running. It might be a better idea to work on getting a small team of good programmers that allow you to charge higher rates first before expanding. As if you expand too fast it might cost too much.
On a side note, I am not sure if this relate to your situation, but Ill mention it since English is not your first language. It might be an idea to take an evening class or two with English, especially for the person on your team that is doing the communication with the customers.
True only if those clients are online as well but that is not always the case. Still, using VoIP service saves more than half of what it cost by using your local long distance service. I use VoIP myself, and Onesuite VoIP saves us $$$ calling clients around the world. And yes, wherever you are, if you get a US number, then these US clients will call you more because they’re calling a US number thus not spend anything on overseas calls.
I see your point. I try to propose a better value and quality than my competitors from the countries you named. Usually when you have experience and references it is not a big deal to quote higher than your competitors and get a deal. However I want to get stable situation and reach some better level. I doubt US-based companies propose much better quality. I am sure I am competitive in terms of quality and overall solution.
So everything I need - to compete with US or CA or AU companies, not with outsourcing ones. Any ideas how I can do this?
Cool. And who can afford paying $125/hour and for what job? I’m just curios so I know where can I find good clients
It was a bit higher initially. I guess noone else could propose good POS integration for the web system
I mean that value was better for the price that in my competitors’ bids.
Live example from my practice. Say client wants a simple tool for keeping his client base, issuing invoices and tracking payments. The same what freshbooks.com does, but in quite simple way.
My expenses for the project are:
$600/2 (junior developer working 2 weeks) = $300
Design - $50
Client was ready to pay $500 only. With 80% gross profit I should charge 350/0.2=1750.
How can I find client for such tool who is willing to pay $1750 for such tool? I don’t say it’s impossible, but it may be quite hard… But I want to learn how to do it because 80% sound really interesting