Ask HN: How do custom software dev firms make money?
I founded, grew, and sold a boutique software services co. Here's the skinny:<p>* The core revenue model is charge customers a certain amount for doing work, and to have a lower internal cost. (duh)<p>* Typically you're looking for a 30% margin or thereabouts; after cost of sales, consultant bench time (yeah you gotta pay that even when folks are idle, if they're employees), etc. you have maybe a 10% profit margin when you're at decent utilization.<p>* Hourly and fixed bid are the primary structures - and I've seen plenty of both. This is simply a question of who will take on the risk of overrun. If it's the services shop (i.e. fixed bid), then they pay for that additional risk by padding the price above their best hourly estimate (that padding is what pays for the services if it does overrun, and is the reward for taking the risk if it finishes on time).<p>* You can lower hourly costs and increase predictability on your resources (an endearing term for employees/people) by hiring them full time, but you take on the risk of paying them for bench time (when you don't have a contract for them, they still get paid). You can avoid this risk for higher hourly rates by using subcontractors. A good practice is to keep a "bench" of folks in your primary areas of expertise and to supplement with subcontractors for speciality tasks.<p>* Ongoing maintenance revenue - maybe, maybe not. Wise customers will want to learn how to maintain their own software and include training as part of the contract - or even embed their resources in the team. This isn't quite like sales of a big enterprise software platform in that regard.<p>* A better long-term practice is to utilize the "foot in the door" to spread out and find other, new work within that customer's organization. Of course existing projects will continue as long as there's a need and the customer is happy, but I don't see a lot of "maintenance" contracts per se.