Time and Materials vs Fixed Price Contracts

Are you one of them? I mean, one of the customers who pay more just because he doesn't have a proper info. Luckily, this article is going to end this. Read on to find out which pricing model to choose and how Annie Edson Taylor relates to this matter!

Today we are going to discuss the topic that nobody likes. We are going to talk about money. Your hard-earned money. Moreover, we won’t try teaching you how to “double your income with these 3 simple hints in 30 days” or other non-working stuff that is here and there on the Internet.

However, if you carefully use given below information, it will definitely bear fruit in the future (if you want specifics: you will notice the first visible results when striking the next bargain).

If you look briefly, it may seem like a perfect solution for any customer: you definitely know how much you are going to pay and what result you expect to achieve. It allows to set pretty tight deadlines (as the scope seems to be quite well-planned), stay aside the process and let developers do their job, so the biggest part of the responsibility lies on them.

However, there are many risks behind this model, so don’t hurry to make a final choice. In fixed priced contracts the degree of uncertainty is high, so developers include a so-called “buffer” - additional hours to solve possible issues, which haven’t been described in the scoping document.

Fixed price contracts have their own advantages, however, it's not the best choice for outsourcing software development.

We will come back to the pros and cons of fixed price contracts a little later. Before that, let’s take a look at the Waterfall model, which is the mainstay of the fixed pricing strategy.

Waterfall model: what is it and how does it work?

Waterfall is a software development methodology. According to this approach, a development process is divided into several distinct stages, which flow consistently. You can’t move to the next one if the previous is still undone.

Moreover, the Waterfall approach requires perfect planning. When the development has already begun, it’s almost impossible to apply any changes. The expression “measure twice and cut once” is just a perfect description of the Waterfall methodology. What are the risks for you? Let me explain.

Have you ever heard about Annie Edson Taylor? The woman has made herself famous by going over the Niagara Falls in the barrel. Ironically, using the Waterfall methodology when building an app has much in common with Annie Taylor’s adventure:

• Firstly, planning is the most important part. In both cases it literally means everything. Lack of planning is almost a guarantee of failure here.
• Secondly, there are only starting and finishing points, and no intermediate ones. You shouldn’t try it if you aren’t at least 95% sure in your success.

“If it was with my dying breath, I would caution anyone against attempting the feat.” – said Annie Taylor on her experience with the waterfall.

What are the pros and cons of fixed price contracts?

As you have already learned, fixed price contracts are risky enough. They are not very well fitted to the outsource software development, which is dynamic and often hardly predictable rather than stable and easy to foretell.

However, some people still use this approach so it would be unfair to leave it without any review. Let’s underline the main advantages and disadvantages of the fixed price model once more before moving further:

If coming back to our journey topic, time & materials methodology can be compared to travelling with your own car. Actually, this comparison perfectly outlines all the basic features of this pricing strategy:

• Firstly, you have more control over the process: you can make changes to your project just like changing your route while travelling by car.
• Secondly, you know what every single cent is paid for. Pretty similar to driving where you pay for the exact amount of gasoline.

You already know that fixed price contracts are based on the Waterfall methodology. For time and materials model developers use the Agile approach. Let’s take a look at how it works.

What is the Agile methodology?

This approach is all about flexibility. It’s based on creating a roadmap (a plan, in other words) of your project and spliting a development process into “sprints” - time-boxed phases with a defined duration and a running list of prioritized tasks. At the end of sprint developers usually prepare a report on what has been done during this phase and update the roadmap. If some tasks left unfinished, they would be reorganized, reprioritized and included to the next sprint.

As you can see, this model requires client more involvement into the process after signing the contract, but it also allows to properly review and evaluate development.

Advantages and disadvantages of the time and materials strategy

In our experience, most app development companies prefer to work using the time and materials pricing model. It allows creating user-friendly products that are suitable for the modern mobile market as good as possible.

You have already learned how this strategy works, so let’s summarize the most important time and materials contract advantages and disadvantages: