Time and Materials vs Fixed Price Contracts

So, it’s time to get the insights on two main pricing models that determine the key characteristics of your relationship with any software development company. Debates “time and materials vs fixed price contracts” seem to be as insoluble as “Android vs iOS”. Nevertheless, choosing a pricing model is the issue you shouldn’t ignore. Why? Because it predicts answers to the 2 main questions that every client has:

• How much will it cost to build an app?
• How good will be the result?

Seems important enough, doesn’t it? Let’s review and compare both software development pricing models and find out which one is the most acceptable for your business project!

🔏 What Is a Fixed Price Contract?

Do you like travelling? I bet you do. Imagine that one sunny day you decided to go on a vacation. Your choice fell on a picturesque country that is pretty far away from the place where you live at. Therefore, a plane seems like a perfect way to get there. You buy a ticket (the price of which is fixed) and fly from your homeland directly to the resort without a possibility to change plane’s route. This is how fixed price approach looks like.

If to talk business, the fixed price model is the pricing strategy based on rigid planning. To have a deal both parties (a client and a vendor) should agree on the predetermined price of a project and explicitly define each other’s responsibilities before the work begins.

💸 Time and materials pricing: everything you should know

However, there is always an alternative. In our case, it’s so-called “time and materials” approach. How does it work? In a nutshell, you pay the actual cost of the work, which is usually measured in hours. The development process length is not so predetermined and the whole project planning is not so strict and immutable.

There might already occur the objection from your side: “If there are an hourly payment and no tough deadlines, the development process may turn into infinity”. Is it true? On the contrary, this model presupposes tight cooperation with the client during development, so you are able to handle the process according to your own interests and budget. In fact, you save even more than using fixed price contracts.

👍 4 tips on choosing a pricing model

Now you have learned enough to make your own conclusion about who is the winner in the t&m vs fixed price model competition. However, I want to share with you a few more hints just to be sure you won’t slip up. Here are some questions you might still have and answers for them.

❓ When to use a fixed price contract?

✅ It may be justifiable to apply the fixed price model to your project when you have exactly (I literally mean exactly) estimated the volume of work and prepared the well-detailed documentation with fixed timelines and the unalterable scope, which is almost impossible for startups. Thus, this strategy may suit a short (up to a month) and completely thought out project.

❓ Why does the time and materials approach often turn out to be cheaper for a client since it has no tight budgeting?

✅ When using this model you pay only for the amount of work done in fact. Neither a cent more, nor a cent less. Fixed price contracts always include about 15-40% of additional hours (counting from the overall project duration) for solving issues that may occur during development. Whether it’s used or not - you still pay for it.

❓ Which one should I choose to get an app of top-notch quality?

✅ Our experience shows that the time and materials model is more appropriate for building a successful app. Why? Firstly, this strategy allows to respond the changing requirements dynamically. Secondly, a development process flows in the deep cooperation with you; thereby, you will definitely like the result.

❓ I need to start my project as soons as possible. What pricing model should I choose?

✅ Due to the differences between fixed price vs time and materials contracts the last is the winner here. Again. It doesn’t require long preparation stage as a lot of issues can be figured out and solved on the go.

💡 Conclusion

Don’t rush when thinking about a pricing model for your project. Take your time. Think independently. And then choose time and materials one.

Joke.

It’s up to you to decide which strategy fits your ideas best. However, we shared our experience and hope that it will come in handy for you. If your project is short and thought out to the details, you may consider using fixed price approach. However, time & materials strategy is a good compromise in any other case.

Any questions left? Challenge our team and we will come up with recommendations on your project.

Take your chance and good luck!