Fixed price or time and materials - what to choose?
There are 2 factors at play here: An idea and financing. Now, you have to make one of the most important decisions in the implementation of a project - which model of cooperation with the company should you choose? There are two: the Fixed Price model and the Time & Materials model What characterizes both approaches? Check out the descriptions below.
What is Fixed Price?
Programming work based on the Fixed Price approach involves budgeting the project in advance, i.e. estimating the total cost of its implementation, according to the client's requirements. But before you say, "Oh, this is for me!", think about it. Are you sure? Why should you be careful about this approach?
Because work in the Fixed Price model is based on a very detailed specification and specific customer expectations. Therefore, if your idea is not fully specified and you hesitate on a few issues, Fixed Price may not be the best for you.
In addition, you must remember that agencies and software houses, when they know that they will work according to the Fixed Price model, often inflate the price of the project. Of course, this is not due to ill-will or pure profit, but due to the fact that unexpected problems and complications may arise during implementation that would otherwise increase costs in a different model. Hence, by choosing the Fixed Price model you can be sure that this is not the lowest price you can get.
Now imagine that the team is halfway through the project and you want to change something in the project. At this point, you will surely face an increase in costs, and perhaps a drastic change in the results.
As you can see, the Fixed Price cooperation model, although apparently beneficial for both parties, and especially for the client, can really only be used when the technical specification and implementation schedule are carefully prepared.
What is Time & Materials?
The second approach to project implementation is Time & Materials. It differs significantly from Fixed Price described above, because the client pays only for the work done. It is a more convenient solution for both the client and the company carrying out the project, as both parties can verify the implementation status on an ongoing basis. It is worth adding that this model works much better for larger projects, for example when implementing a quality maintenance project. It is difficult to value large projects in advance, and moreover, while working on a project, the business reality may change and a project priced, for example, a year ago, may be priced completely differently this year.
Moreover, what is important from the customer's perspective - you obtain a standard price for programming services, regardless of whether there will be a change in the direction of work during the implementation. In this model, there are no additional costs for the risk incurred by the company in connection with potential project complications. In addition, a given activity, estimated, for example for ten hours, can be performed in five hours and then the client saves money.
In addition, when you decide to use the Time & Materials model, you do not need to have a very detailed specification of the project, design or other important design elements. The idea is definitely important, while the subsequent components are agreed with the client while working on the project. We will not delve into the methodology of project management here, we will write about it soon on the blog.
And if you want to know what affects the pricing of a project, see our previous post here.
Advantages and disadvantages of both models
Advantages of the Fixed Price model:
- pre-defined budget
- work schedule prepared in advance
- no need for intensive customer involvement
Disadvantages of the Fixed Price model
- lack of flexibility when changes to the project are necessary
- high price
- time-consuming preparation (e.g. specification)
- underestimated valuation of large projects when there are changes during implementation
Advantages of the Time and Materials model
- the possibility of modifying the project without incurring significant costs
- quick start of work
- the possibility of carrying out the project at any time intervals
Disadvantages of the Time & Materials model
- the need to provide a competent person on the client's side to supervise the project
- the possibility of underestimating the project cost
- feeling of unpredictability in the absence of cooperation between the client and the development team
As you can see, there is not one good solution to choosing a model. In fact, a lot depends on your budget, the extent to which you are able to get involved in the project and how quickly you want to start the project. However, it all comes down to the competence and experience of the team you will work with. At WebMakers, we work according to both models, though our projects are mostly Time & Materials. We recommend the Fixed Price model for shorter projects that are not too complicated and have a precise specification. If, on the other hand, you need to specify your idea, we will certainly advise you on the Time & Materials model.
If you need a consultation on your ideas, don't hesitate to contact us. My contact details are below.