You have sent several RFPs (Request For Proposals) and have received a few different proposals ranging from $5000 to $300,000, from several web development companies. You are puzzled and wondering why there are such a large ranges in cost. I may have a few clues and good explanation regarding the large gap in development cost. There are different types of development companies with different business models, which creates different cost structures. Below are a few examples:
"Web Development Cost / Rate Comparison - Different Types of Custom Web Application Companies"
"Extravagant Class" Custom Web Development CompaniesI cannot classify these companies based on the number of employees or company sales or finances; however, I can classify them based on their luxurious building, excessive spending and highly paid employees or executives. These types of companies tend to only do business with a certain class of clients who are willing to spent at least $200K on any project. Their average web application development cost is around $500K and their staff or contractors' salary is in the six figure plus range. Their proposals are usually based on a lot of fluff with the development rate ranging from $400 - $800 per hour. These types of companies focus on custom development. Although they are highly organized and it is almost guaranteed that your project is going to be completed, they tend to maneuver or progress slowly and their development process requires an immense amount of fluff. For large companies who have lots of extra money to waste, these types of development companies will be a perfect fit. In addition, the persons who help make the decision to select the large development company do not have to worry about their job or the decision they made; if the project goes wrong, they can always say, "We picked them because they were the largest in the field like us so we did not expect to experience any sort of issues!"
"Moderate Class" Custom Development CompaniesThese types of companies tend to have a moderate and reasonable spending and operation. Their average number of employees are in the 10-20 range. Their proposals are usually based on the estimated hours at the development rate ranging from $100 - $200 per hour. These types of companies may or may not be organized, depending on the quality of their company management. They tend to be able to move quickly on any project with a faster development process. When you hire this type of company, the result of your project is based on the company owners or management's ethical standards or honesty, experience in development, design ability, usability awareness, SEO practices, development specialty and other relating factors.
In my opinion, a web development company in this category makes a perfect choice as a long term developer and supporting partner for a company's project, small to large, as long as the company has the following dynamics:
*Has set forth high ethical standards
*Has considerable experience in large scale development projects (with quality programming)
*Has considerable experience in design, usability and search engine optimization
"Small Class" Development CompaniesThese types of businesses run their operation on a very low budget and usually has only 2-3 workers including the business owners / partners in the company. Their proposals are usually based on estimated hours at the development rate ranging from $75 - $180 per hour. These types of businesses are usually not organized. They cannot take on a large development project. When you hire this type of company, the result of your project is based on the company owners or management's ethical standards or honesty, experience in development, design ability, usability awareness, SEO practices, development specialty and other relating factors. These types of development companies are a perfect fit for servicing small budget business clients, for example, a small one location - mom and pop ice cream shop.
Independent Contractor DevelopersIndependent contractors have their own different class of financial expectations, and their rate is based on their knowledge and experience and / or other factors such as cost of living, financial needs and spending habits. Their rate can range anywhere from $50 - $250 per hour. The level of organization and / or the ultimate result of a project engagement varies based on the person's development and business experience, and years in the business. It also highly depends on the developer's ethical standards. If an independent contractor already has a salaried job and provides development on the side, there is a good possibility that he / she will get burned out or run into time constraints, and will quit the contract work in the middle of the project. In these types of circumstances, contacting the developer can become difficult and sometimes result in even the loss of the project files. Many designers and developers start their independent contracting business and end up quitting their business within the first year or two because they either become burned out or realize and encounter the usual challenges of running a small business. In my experience, if an independent contractor does not have at least five years of experience in his / her independent contracting business, there is a good chance that the business and the pending projects will end up in limbo. An experienced independent contractor developer will not be able to take on a large development project single handedly; however, if he / she is experienced in the development field, he / she may be a good candidate for consulting.
Low Cost, Mass Producing Template Level Off-shore Development CompaniesThese types of development companies concentrate on mass producing template type web sites. Their rate can range anywhere from $35 - $90 per hour. In my opinion, these types of development companies in many cases do not practice high ethical standards. Their business model is based on mass production with very little focus on their client's success. These companies would not make a good choice for developing a custom web application. Their ideal clients are the speculators who just need to put together a quick web application without doing any homework or planning. In most cases, those projects end up failing because there was not a lot of business and marketing intelligence and / or due diligence that went into the concept and planning of the project in the first place. Usually there isn't any project support or maintenance available from the massproducing development companies. Many of those companies may use quick and easy resources available in order to mass produce projects. This includes patching together any available code libraries (good or bad) and / or outsourcing to low cost off-shore companies.