FIXED PRICE VS TIME AND MATERIALS: WHICH MODEL TO CHOOSE FOR YOUR PROJECT

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25
May 2018

Developing a software product for your business is a great step forward to your success. So, after you have turned a brilliant idea into a detailed concept, discussed it with your partners and found reliable specialists that can make it come true, only one more significant question remains. This question concerns the pricing model you need to choose for your business relations with the IT agency.

The contemporary market suggests us two possible pricing models: Fixed Price vs Time and Materials. Both of them are quite suitable and convenient for businesses. In both cases, the service provider and the customer get the expected results. However, the difference is huge and each option can suit particular businesses better than the other one.

The right choice will lead you to great results. By picking the right model, you solve potential issues before they appear and answer the questions that have not been asked yet. Long story short, the right choice between Fixed Price vs Time and Material contracts optimizes your cooperation, saves from conflicts, troubles and even financial losses.

We have written this article to provide you with the information about those models worth considering and to help you make the best decision for your business.

Fixed Price Model

The Fixed Price model is a stable and precise agreement between the parties. The service provider gives you a list of services and their costs. You either sign the agreement or discuss the conditions, details and negotiate decreasing the price. Still, the result is always the same: sooner or later, you reach consensus and the development starts.

This model has a great number of obvious advantages:

  • Complete Awareness

You know the budget from the very beginning. It allows you to stick to the plan and exclude any potential losses or unforeseen expenses.

  • Predictability

Fixed Price contract demonstrates you all the details and conditions of your agreement. So, you know for sure what you pay for and how your app will look like.

  • Full Control

This type of agreement allows you to keep your hand on the pulse of the software development and easily detect any issues.

Now, let’s take a look at the dark side of the Time and Material contract. There is an opinion that it does not fit the IT industry specifics at all. The main problem, according to this point of view, is that it allows no or minimal flexibility. Let’s take a look at the following cons:

  • Higher Costs

The chances are you will spend more. Fixed Price contracts include certain risks, so the price is always higher.

  • Long Preparations

You and your development partner may spend weeks or months discussing the conditions of the contract and all the peculiarities of the process.

There is a number of possible scenarios that can be consequences of signing a Fixed Price contract:

  • Functionality is Poor

It is a common case that the clear understanding of the concept comes when the project has already been launched. You ask for the additional features to be included, but the development team is busy with their next tasks. They have neither time nor motivation to keep working on your app. So, you may get nothing more than the unfinished product.

  • Features That Are Useless

When the website is ready, you may see that some functionality should be deleted. You ask your developers for some fixes and realize that you have lost some of your money developing the features that were not really necessary.

  • Lack of Support

You may notice ugly bugs on your website and ask your development partner to fix them. However, as the answer, you may get the response that the support services were not included in your agreement. So, you need to either spend more money or keep running a buggy solution.

As you can see, all those cases have one thing in common: your additional financial loses. This is the reason why the Fixed Price model’s alternative, Time and Material model, gets more and more popular.

The Time and Material Type of Contracts

This is a completely different type of agreement. A Time and Material contract allows providing customers with the exact products they need.

You and your development partner set the price in dollars per hour. This rate may vary depending on the positions of the professionals that are going to work on your project and their experience.

The list of this model’s advantages can be really long. We identified the most important ones and added them to our review:

  • Flexibility

If you opt for a T&M contract, you can change the requirements during the development process.

  • Iterations

The project is divided into smaller pieces – iterations. On every stage, you can analyze the progress and decide what to add or what to modify in order to get a better result.

  • It Saves Your Time

A Time and Material agreement allows you to track every commit and get the solution faster than in case of using the Fixed Price model.

Regarding this option, another considerable fact needs to be mentioned. This type of agreement requires you as a client to be deeply involved in the design and development processes. So, if you have no time for this or you do not want to communicate daily with your development team, it is better to choose the first option – the Fixed Price model.

The only disadvantage of this type of contracts is that you do not know how much money you will have to spend before the product is ready.

Tips on How to Make the Right Decision

Some say that Fixed Price contracts are good for the waterfall development methodology. However, keep in mind that progressive software development agencies have abandoned this practice a long time ago. The Agile methodology has shaken the industry, brought incredible opportunities and made most companies switch to a brand-new way of organizing the development process.

We analyzed our previous experience carefully and the questions our customers ask us frequently to present you with the following tips on how to pick the right model. So, Time and Materials vs Fixed Price: let the battle begin.

Choose a Fixed Price contract if:

  • you know exactly what amount of work should be done,
  • you have prepared detailed, clear and transparent documentation,
  • you have a fixed time frame for the project,
  • you want the development to be done without your direct participation.

We would like to mention that this type of pricing can suit short-term projects well.

Opt for the Time and Material model if:

  • you want to save time and money,
  • you are able to take part in the development process,
  • you need some flexibility,
  • you would like to make changes to the requirements,
  • you want your product to be impeccable.

A Time and Material contract is great for long-term complex projects that are full of various features and functionality. Additionally, if you want your product to be used by thousands of people worldwide, you will definitely need the reliable support. So, Time and Material model would be the right choice for you.

Conclusion

We have delivered dozens of successful projects to our clients. We have built projects from scratch, optimized old solutions, fixed tons of bugs and supported mobile and web applications. Our clients are completely satisfied with our services, so we have enough experience to make conclusions about the best approach to cooperation.

The Fixed Price model is a good option if you want to get a small app. The Waterfall methodology allows you to avoid participating in the development process itself and get the result after the defined time period, for the beforehand-approved costs.

The Time and Material model is a great choice for big scalable solutions that require many efforts and further support.

Nobody likes to talk about money. However, business relations turn this topic into the most important negotiation of any cooperation. In fact, it is up to you what to choose – the Fixed Price or Time and Materials model. Find the right partner, ask for a competent advice and take your business to success.

Thank you for your interest!

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