by Liza Kindred on May 18, 2010 // Short URL

Show me the money!

A Lullabot Business Case Study

Last month, I had the opportunity to speak at DrupalCon San Francisco. I had a great time speaking. I did a case study of Lullabot itself, in which I talked some about how the company is structured, some of our core beliefs, and about my own business ideas and strategies. (You can watch the slides and hear the audio here, or access the slides here.)

I'm a huge advocate of giving things away (creating value), and then using smart business models to capture some of that value. Part of what I talked about during this session was how to determine one's value as a Drupal shop. When I first came to Lullabot (about a month after Matt and Jeff founded the company), the company was swamped with work requests. Raising our rates was a great filtering mechanism for us, and also helped "buy" the free time that our awesome team members need to do things like write books, co-maintain an entire release of Drupal, and maintain four billion modules. But for us, it was a total guessing game. We basically raised our rates until we reached the point where we started meeting some pricing resistance. We've done careful tweaking of our rates over time, but we're at a point (after 4 1/2 years in business) that we're confident in our rates and very confident in the value that we provide for those rates.

However, I'd like to make it easier for you. Trial and error can be messy, time-consuming and expensive. I sometimes do freelance consulting (I love helping to build something out of nothing) and I recently worked with the team at Rapid Waters Development to get their business set up for success. (Lullabot has since acquired them - success!) We spent a lot of time figuring out pricing models. I really wished at that time that I could get my hands on some concrete information about what a variety of Drupal shops are charging... and so now I've gone ahead and gathered it.

This is a super small sample, and it is entirely unscientific. I asked 10 people to take the survey; 9 did. (Go open source mentality!) I hand-chose who I asked - I wanted the answers to come from established, credible, full time Drupal shops. I'm very grateful to those business leaders who filled out the survey. I decided against opening up the survey for anyone to take because I thought the results would get diluted if there were one-person shops or huge outsourcing companies whose Drupal services may only be a portion of their business. (If you guys think a larger survey would be valuable, let me know. I'm totally open to doing one of those, too.)

So, what did I learn?

That we're all over the place. Lullabot is a boutique shop - we charge a lot of money, we kick a lot of ass, and we give a ton back. Other shops work more with NGO's and non-profits, and by necessity need to charge different rates. Some shops may want to compete on price, and thus would want to fall more to the commodity level end of pricing. There's no right or wrong rates to charge. However, I believe that we should all know where we are on the pricing scale, so that we can plan and market ourselves accordingly.

Whatever you do with this information, I encourage you to ensure that you're adding as much value as possible, and taking good care of your people. Happy clients and comfortable employees make for more successful businesses, and they are a great way for us business peeps to contribute back to the Drupal eco-system.

The pricing only slides are available as a PDF; I hope that you find them helpful!

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Comments

Michael Shaw

Interesting

I have recently been rather curious what some of the price points are for boutique development consulting. Thanks for breaking it down like this.

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Anonymous

Thanks very much for this. I

Thanks very much for this.

I think a wider survey would be useful if the resulting data was split up by company size.

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Kate Lawrence

The x-factor

I ran some standard deviations based on this set of data -- a bit of a small sample -- but nevertheless interesting; clustered around $155 to $185/hour with the consulting, training, and performance & scaling tipping the distribution toward the higher end.

The x-factor is the efficiency. If a $200/hour person does the work in one hour and a $150/hour person takes twice as long, the higher price, ceteris paribus, is the better deal for the client.

Beyond that, there are the issues such as on-time-delivery and other client satisfaction issues.

Again, very interesting, with averages down a bit from another study about 18 months ago.

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Dipen

How do you measure X factor!

Very valid and common concerns amongst clients and business owners is what you just outlined here --

"The x-factor is the efficiency. If a $200/hour person does the work in one hour and a $150/hour person takes twice as long, the higher price, ceteris paribus, is the better deal for the client."

Do you have any ideas, tips around this? Whats an empirical way of finding the efficiency and maybe have a comparison chart.

Also another dimension worthy to add in that data is how long these projects run in various segments, which might give some indication towards the efficiency part. Do you have rough ideas on how long these projects run?

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Michelle

Sounds about right

Those rates are in line with what I hear around the community when there's rate talks. Most of the independents seem to be on the low end of that range.

That's why I think it's sad when I see posts like this: http://drupal.org/node/577078 . If his workers really are the experts that he claims, they are getting ripped off big time.

Michelle

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Anonymous

Indeed. I wonder if the

Indeed.

I wonder if the economy is so bad even in the United States that Drupal programmers with a high level of proficiency are willing to work at just above the rates for the homeless in Europe, as someone pointed out.

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Anonymous

Not at all. I'm a freelancer

Not at all. I'm a freelancer and I charge about $60/hr for development. Drupal companies can charge 3 times that, but they probably pay their developers half of what they charge.

But yeah, efficiency matters a lot here. I consider myself extremely efficient so I could probably charge more.

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Michelle

Definitely not

The Drupal world doesn't seem to have been hurt too bad by the economy. And it's really a global economy. There's plenty of work out there for decent rates. I'm not actively freelancing, and say so on my contact form, and I _still_ get offers from people.

Michelle

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Tobias Sjösten

Thanks for sharing some

Thanks for sharing some really interesting data! What is the continental spread of these companies? US only, or are there some Europeans as well?

I would be interested in both participating in and partaking the results of a bigger survey. Preferably split up by company size, as Anonymous said, as well as clientele and focus areas.

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Kumar Shorav

Share

Thx for such sharing interesting data. It would help to have a share button though. Had to copy paste the url to post it on twitter.

Cheers
-S

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The Brainchild

Very interesting!

Glad to see you had the opportunity to speak! We have built a variety of sites in Drupal -- some big and some small -- and I'm glad to see the platform is still progressing.

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