[jameshart]

Let's say they figure out you only spent 100 hours to deliver them $50,000 of value. It's your job to persuade them that that guy on the internet who says they would sell them 100 hours of dev time for just $5,000 will only give them $5,000 of value (if that). If I have a choice between getting someone who delivers value at a rate of $500/hour versus someone who delivers value at $50/hour, and I need $50,000-worth of software, I should choose the more efficient developer, not the cheapest one.

[DougWebb]

For the kinds of projects my company tends to do, when we're getting into repeat business we're generally not competing with other contractors. Our clients know that the other contractors would have a ramp-up cost that we don't, and an unknown working relationship vs our good working relationship. Instead, they look for per-hour discounts and ways to 'cut costs' while delivering the same value. They also typically have their own development team who don't get paid nearly as much per-hour as my company charges, so they look to share more of the work with their internal team. Since we do product, services, and support, including training, it's hard to argue that the internal team can't or shouldn't do the work.

It gets complicated, but in the end we mostly come out alright. Our clients are well aware that taking on additional work reduces our likely development cost but increases overhead costs and raises project/schedule risks. It's a tradeoff they accept, and we work with them to ensure the project is successful.

My point is, in the real world you can't just charge by the value you provide rather than by the cost of providing that value. That's a simplistic point of view.

[jameshart]

I do appreciate that the reality is that development contracts work that way. I've just spent a lot of time being frustrated at how often the business conversation around software assumes a basic hourly contract cost-plus basis.