Software quote red flags: how to read a quote line by line

A finance manager is holding a six-page quote. Page four says “Development: 180 hours”, “Project management: 15 %” and “Miscellaneous: DKK 12,000”. The total is DKK 186,000 excluding VAT. The quote looks professional, yet nobody at the company can say what they actually get for the money or what it costs per month afterwards. It is the most common situation we meet when companies ask us for a comparison quote.

A software quote is both a price and a description of risk. The price is in bold; the risk hides in the lines that are missing. This guide covers what a good quote contains, the 12 red flags we see most often and how to compare three quotes so you choose on the total price over three years.

How do you read a software quote line by line?

Start by finding the sections that should be there, and put a mark next to each one that is missing. The table below is the anatomy of a quote that can stand up to being read by both management and an auditor. It applies to websites, web apps and mobile apps.

Which 12 red flags should you look for in a software quote?

Red flags in the price

1. An hourly estimate only. “About 180 hours” with no cap, no breakdown and no plan for what happens on overrun.
2. Unexplained percentage lines. “Project management 15 %” or “Miscellaneous” with no description of what they cover.
3. A price far below the others. A gap of half that the vendor cannot explain in concrete terms.
4. Running costs “by agreement”. No monthly price for hosting, updates and support after launch.

The fourth flag is the most expensive in the long run. A common rule of thumb is that maintenance costs 15–20 % of the build price per year. For a DKK 180,000 system that is DKK 27,000–36,000 a year, and over five years as much as the build itself. If that line is missing from the quote, a large part of the budget is missing. In software project budget we work through the total cost of ownership.

Red flags in scope and process

1. Features in a single paragraph. “User-friendly admin module with flexible order handling” can mean anything.
2. No assumptions. The quote does not say what you have to supply or what is excluded.
3. No change process. Nothing on how new requests are priced, so every change becomes a negotiation.
4. Payment before delivery. Most of the price is due before there is anything to see or test.

Flags five and six belong together. When scope is vague and assumptions are missing, it becomes impossible to say whether something is a change or part of the deal. That is where many working relationships seize up. Ask for a list where each line is something a user can do, and a list of what is excluded. If you have your own requirements specification, ask the vendor to answer it point by point.

Red flags in ownership and running costs

1. Ownership is not mentioned. Or the vendor keeps the rights and grants you a licence to use.
2. Accounts in the vendor’s name. Domain, hosting or the App Store and Google Play accounts are created on their side.
3. Hidden exit terms. A minimum term or termination fees that are not clearly stated in the quote itself.
4. A closed platform. The solution is built in a system only the vendor can work in, with no documentation.

A minimum term is perfectly legitimate when it is clearly stated. We have a one-off fee ourselves if the plan is cancelled within the first 15 months, and it is in the proposal from day one. The problem arises when terms only surface in a standard agreement after signature. Read more about rights, licences and accounts in who owns the code.

How do you compare three software quotes?

Here is a worked example. A wholesaler with 30 employees wants a customer portal where customers can log in, see orders and download invoices from e-conomic. Three vendors bid. Quote A is about 150 hours at DKK 950. Quote B is DKK 165,000 at a fixed price. Quote C is DKK 140,000 at a fixed price, but the e-conomic integration is an add-on. The table puts the lines side by side and calculates three years ahead.

Quote A looks cheapest, but its total is a range: with assumed running costs of DKK 1,000 a month and 30 % more hours than estimated, it ends up highest of all. B and C land on almost the same amount over three years, but B includes bespoke design and no minimum term, while C builds on a template with a 24-month term. The company can now negotiate on an informed basis, for example by asking B to move one feature out of the first version.

Which caveats in a quote are reasonable?

Many caveats are perfectly reasonable. A vendor who knows the craft writes assumptions in, because they protect both sides. What matters is whether the caveat is bounded and explained.

Which questions should you send back to the vendor?

• What is the most we could end up paying for the described scope?
• Can you break the price down per feature and per integration?
• What is not included, and what do we need to supply?
• How are changes priced and approved?
• What do running costs come to per month, and what do they cover?
• Will you confirm in writing that we own code, design, data and accounts?
• What is the notice period, and are there any fees?
• Which milestones are the payments tied to?

The list can be sent as it is. If you are earlier in the process, we have more questions for the meeting itself in questions to ask a web agency and a framework for choosing a vendor in how to choose a software company.

When is a software quote too cheap or too expensive?

Use typical market ranges as a reference. A standard agency website typically costs DKK 15,000–40,000, a simple app DKK 50,000–150,000 and a medium-complexity app DKK 150,000–500,000. Agency hourly rates are typically DKK 1,100–1,300, while a senior freelance web developer charges DKK 800–1,400. If a quote sits far outside the range, the vendor should be able to explain why with concrete reasons. See more figures in developer hourly rates and fixed price vs hourly billing.

What does a Ceptiv quote look like?

Our proposals are built to pass the checklist. The price is fixed and tied to packages with a set number of features and integrations, for example DKK 36,000 plus DKK 900 a month for a website with 24 features and 2 integrations. The monthly price covers hosting, maintenance, updates, support, security and backups. You own the code and data, and the termination terms are in the proposal. See the packages under pricing, or get a quote to compare.