Why would one company pay 10x higher rates than another, for analogous Magento developers?
I see professional Magento companies charging $150-200 per hour. I also see the new X.commerce (X.com) official website (the program Magento is being rolled into) has a prominent developers directory run by ODesk.com, where developers seem to average $20 per hour. Of course we all know that $20 per hour is for developers overseas who probably work alone and have little accountability. $200 per hour are going to be highly accountable, more assurances, blah blah. But come on! In my mind that justifies maybe 3-4x higher rates. But 10x?
I say all this as a skeptical developer who wants to run a high end company myself. Truly, for me to run the kind of shop I want to run, with local talent who is easier to manage and turn out quality results, it is NOT POSSIBLE to charge any less than $150 per hour, if I want to be profitable. But when I look out there and I see how HUGE the cost differential is, it makes me really worried. I can sell 2-4x higher rates on professionalism, but how do I sell 10x higher rates? Especially when X.commerce is emphasizing the cheap labor available (thanks eBay!).
Appreciate any thoughts on how to reconcile this bizaaro development world.
It also doesn't help that when I begin my search on Google with terms like "magento developers", nearly the entire paid section of the results page are ads from oDesk, Freelancer and the like touting Magento "Experts" as low as $8.50 per hour. If a prospective client begins their search for an agency here, how do you overcome the issue?
Are people truly willing to pay 10x more to avoid difficulties and poor outcome? I mean, you can afford to screw up 8 times and still come out ahead! More realistically though, I'd expect that means most people would split the difference and seek out firms for $80-90 per hour. But who can sustainably run a business at that rate, unless they're still just reselling overseas labor? Perhaps that's the solution? Remember, a consulting company must charge 2.5x-3x the effective hourly rate paid to his staff, to cover sales costs, insurance, office space, etc. Even if you assume you're paying your developers $40 per hour (very low for US!) that still works up to $120 per hour! A developer would probably make more money just becoming a real estate agent in that case.
So what am I missing?
It's all about market positioning.
As a marketer my field is different to a degree but still there's consultants who charge $300 an hour and those who charge $5 just as there is full time employees making 250k vs 25k. Simply put the two sides do not compete.... That is to say someone looking for a $20 an hour hire is not my client and I'd never try to upsell them to be while someone looking to hire me isn't going to consider that low end bid either.
Companies approach services for more than just their rates so while the list of benefits may seem like "blah, blah, blah", it's those differences that many people look for. If you want to play in a higher level market you need to offer the right benefits [it's not just development, it's quality, accuracy, and management of it all] and find clients looking for them.
Even overseas providers face this issue as there are some great shops that are remote and thus not $10 or $20 an hour. If you think it's tough in the western markets imagine trying to convenience someone that you're remote work is different than someone else. There's a reason why oDesk type sites are not a strategy when you pass a certain pricepoint.
Of course starting with a program known as free [not just open source] is going to lower the bar, muddy the water, and make it harder to find clients who stand out. But that's the game.
And real estate isn't doing so well these days...
As a Magento site owner who can "hack" PHP when I need to but am by no means an expert, I've relied on a number of Magento outsources. And my maximum is around $100 / hour for U.S. based quality developers with a track record. These are small - but professional - firms specializing in Magento. If your break-even point is $150, you'll definitely need a pretty persuasive differentiating strategy to compete.
One suggestion: If you could find some Magento clients who have been burned with low-cost, unexperienced developers you could put together some great testimonials. And if you were able to get them as clients, you could do some convincing side-by-side comparisons highlighting the pain and suffering the other developers caused.
Thanks for the feedback. From what I've seen, every professional ecommerce consulting with an all-US staff is charging $125-175 per hour; the firms offering more strategy type services are at the higher end; tech specialists at the bottom end. In the $60-90 range you can get two things: (a) American freelancers or (b) a hybrid company in which Americans are onshore running day to day operations, but have a team of developers offshore somewhere. The $100 price threshold you mention falls right between those two worlds, so you must be working with either hybrid firms or freelancers?
Just curious - are you a community edition shop or enterprise edition? I've observed the higher rate shops are generally targeting bigger companies running EE. I've also observed that companies in which the owner is also the hiring manager, tend to go with the lower hourly rates, in which the freelance or hybrid firm model is a necessity. I've also observed after doing more research, higher end "enterprise" companies seem to prefer to spend higher rates to work with all on-shore teams, who come with better insurance, assurance, reputations, etc. I'm guessing they're also spending the extra $$ for the EE version too.
The $100 / hour shop U.S. based freelancers I referred to was a small shop, but unless I was deceived all the coding and design work was done stateside. And we are running Community (instead of EE) which likely makes a difference.
But I have noticed rates for Magento programmers going up recently. We used an off-shore freelancer who had been part of the original team at Varien, and when we began working with him his rates were $55 / hour. In the last 6 months, his rates have gone to around $80 which I imagine is due to both his great work with Magento and the increased demand for experienced, expert developers in the space.
I happened to think more about this point the other day. It is a very good point ... but there's a big difference between technology and marketing in this regard. Technology is alot more binary. At the end of the day, you know the skills or you don't. Yes, there are some much more proficient than others, but at the end of the day, it is an artisan skill.
Marketing on the other hand is more of an "art" than a science; some people get it in a big way and some never will. And those who truly get it can make you a lot of money if they're on your team, making them very valuable. A great engineer on the other hand is going to have only incremental impact to the bottom line. And the variation in skill level is not as pronounced. There are issues you could talk about when it comes to offshoring, but that's a different issue entirely.
My point - yes I can imagine huge swings in value of marketing professionals, but engineering skills (a) have less impact on bottom line, (b) are a lot more comparable to one another, and thus (c) a lot more commoditizable.