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The beginning of a project is always full of questions: What? Why? How? With whom? Once you have found your perfect idea and dream company, the next key decision is what pricing model to choose. And it is not only about money, but the whole process and workflow, so it is worth thinking carefully. In the following article, we will discuss the two most popular forms: time and material and fixed price, and help you decide which one will be best for your business.
Developing a product is thrilling (and stressful but let’s focus on positives) - you set a discovery call with the software house, talk about needs, great solutions and technologies, plan the strategy, create a product roadmap, imagine how our new website or application will impress customers. The future looks bright. But with one thing, negotiations grind to a halt: which pricing method should you opt for? And this is where things get tricky, because you have to take into account everyone’s preferences and habits, and above all - what will be best for the product.
Fixed price, for those who like to know what to expect
In the fixed price model, you get a predetermined quote for a service, regardless of how much time and materials it takes to complete it. Sounds straightforward, doesn't it? But there's a catch - you need a set, rather unchangeable scope of work, which the contractor needs to perform for us.
Fixed price is chosen by companies that have a precisely defined scope of work and know that it will not change.
It works well for short, quite simple projects, such as a contest landing page or an application for a seasonal campaign, which will not require additional modifications.
It is also often chosen by businesses that need to have a very strictly calculated budget, for example for a tender, and which do not want to be actively involved in the product development process.
It is also popular in companies with an extensive administration system, where many people are responsible for the approval of every stage because consulting each change could be inefficient. The same is true when working for external clients.
What are the advantages of fixed priced model
- Predictability. You know exactly what costs and what results to expect.
- Transferred responsibility. After the order, you only have to wait for the final result because you are not involved in the process of creating the product.
- Clear deadline, which you know in advance, thanks to which you can more easily plan further.
- Easy to manage with multiple decision-makers, such as other companies and teams.
- Relative popularity of this model in many industries, so our clients and partners may prefer it.
What can become a problem with a fixed price?
- From the outset, you need to know very clearly what you want and take the time to plan carefully for your needs and expected outcomes. This can be difficult if you don't have much experience.
- A rigid model in a dynamic industry? Risky when you are delivering a creative campaign or the project is not yet fully planned and you won't have space for flexibility and change.
- You don't always get the best possible solution because a lot of control and constraints prevent us from proposing better, more creative options.
- Not suitable for every project, especially where different companies are collaborating. A stiff scope set for development, for example, can mean more constraints on design. As a result, you don't get the full value of the product because the parties limit each other.
It also works well in companies where the approval structure is clear.It is best when the project decision-maker is responsible for contacting the software house. This makes communication faster and easier.
It is often the best solution when the project is not yet fully planned and you want to leave an agile margin for changes or adding new elements. It is important for example in the case of larger projects where the priority is quality and looking for the best possible solutions. This method may also be worth choosing when the project is carried out by several contractors, each of whom is responsible for a different area.
What will you get out of time and material model?
- Flexibility is the biggest advantage of this model. You can develop and improve the project in the current process.
- Security. You can easily react to market changes and potential problems.
- Impact. Let's be honest - when working with an external company, you like to actively participate in the process of creating a project that is important to us.
- Quality first. While the fixed material model is all about fulfilling scope, the idea of time and material is to look for the best solutions to fit the situation.
- Creative mindset. For new ideas and solutions to develop, you need to have space for them. Developers will be more willing to think outside the box knowing that they will have the opportunity to realise their ideas.
- Efficiency. Project pricing depends on time, and this drives the team to work as quickly as possible while maintaining quality.
- Partnership. Instead of principal and contractor, you and the software house are partners, working together with the same goal - to make the best possible product.
What you need to be ready for with time and material
- Bigger responsibility. In this model, control over the budget and timesheet is mostly on the client's side.
- Lower predictability. You can't accurately assume the time and cost of the project.
- Less popular. Although time and material are standard in the IT industry, many industries are still used to the fixed price model and it can be difficult to convince some clients and partners to try this solution.
At Apptension we operate on a fixed price model...
The choice of billing model is very individual and in Apptension we are ready for different customer preferences. What matters to us is transparency and clear communication, therefore, throughout the cost estimate, we explain exactly where particular amounts come from and how they can change. When working with creative agencies who need to declare a specific amount to their clients, we often operate in this model. Our long-standing relationships with companies are very helpful here. By knowing how they operate and what they need, we can offer more creative, innovative solutions right from the scope-setting stage.
...and we love time and material!
We are also increasingly working in a time and material model, as many startups and companies based on the agile model prefer more participation and flexibility in the entire development process. In such cooperation, the client can always expect estimated costs and delivery times from us, and thanks to our experience in numerous projects, these assumptions are quite precise. Working on a time and material basis, the client takes part in our status calls, becoming part of our team, which allows us to build a great, inspiring dynamic.