by Adam Juda on Tuesday, December 2, 2014
A software engineer told the following story on a discussion forum: A company had reached out to him (directly) and asked him to set up a training course for its software engineers. There was just one problem. He had no idea what to charge.
Other technologists threw out all sorts of ideas.
- My friend charges $5k each day. You should do that too!
- Pick whatever you want, then double it. Big companies have lots of money.
- The typical rate is up to $10k, so you should use that.
The future trainer now had two problems.
- He had no idea what to charge.
- He was flooded with ideas from other people who had no idea what to charge either.
Oddly, no one pointed out the obvious elephant in the room. The price that he can charge for technical training is exactly $0. Actually, it's less than that. He's taking a room full of developers out of commission and that's going to cost the company some serious money.
I can already hear your objections. "But, he's not going to waste their time! They're going to be better developers! They'll more than make up for the time that they spent in training!"
Congratulations. You've just taken your very first step to understanding business economics.
The truth is that the poster isn't selling training at all. Training has no inherent value. He is selling a more efficient development staff. That has a very real value that can be estimated.
Let's build a very simple model to examine the situation. I'm going to use some numbers that I plucked out of the air.
- Fully loaded cost of a developer for one year - $150,000
- Efficiency increase after training - 10%
- Number of developers to train - 20
Now time for some math: $150,000 * 10% * 20 = $300,000 value in a single year.
Our mathematics complete, we have finally arrived at what the "trainer" is actually selling. He isn't selling his training. He is selling a $300,000 return to the company within one year's time.
Lesson: When you frame your pricing in terms of the benefit provided, both you and your customer will feel better about a higher price tag.
Want to learn more about how to price software? You can always buy my book or request a private pricing consultation.