{"id":4912,"date":"2017-07-13T00:00:00","date_gmt":"2017-07-13T00:00:00","guid":{"rendered":"https:\/\/www.freelancermap.com\/blog\/software-development-project-pricing\/"},"modified":"2024-09-16T13:21:04","modified_gmt":"2024-09-16T11:21:04","slug":"software-development-project-pricing","status":"publish","type":"post","link":"https:\/\/www.freelancermap.com\/blog\/software-development-project-pricing\/","title":{"rendered":"Pricing a Software Development project: Fixed Price vs Time & Material vs Fixed Budget"},"content":{"rendered":"\n

So you\u2019ve finally found a software development company to implement your idea for a web\/mobile app (or both). But what\u2019s next? What\u2019s with all these pricing arrangements? Which type of contract to choose? There\u2019s no need to panic, let\u2019s run through the options…<\/strong><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Fixed Price<\/h3>\n\n\n\n

In a nutshell, a Fixed Price contract<\/b> is a special agreement that stipulates detailed product requirements and the price to be paid for their implementation. The keyword here is \u201c detailed<\/b>\u201d.<\/p>\n\n\n\n

\n

Join our freelancer community today!
Create your profile in just 2 minutes and start attracting new clients.<\/p>\n\n\n

Sign up for free<\/strong><\/span><\/a><\/div><\/br><\/p>\n<\/div><\/div>\n\n\n\n

From UI\/UX mockups<\/b> and numerous checklists<\/b> with expected results to even acceptance criteria – everything has to be well documented. Product requirements are usually created either by the client themselves or worked out with the team of developers.<\/p>\n\n\n\n

Since the budget and the scope of the project are being<\/b> set in the very beginning, the team has to be able to foresee everything that can possibly go wrong and include those risks into the contract.<\/p>\n\n\n\n

From a technical perspective, it\u2019s extremely difficult; there will always be some new information or technologies to consider. Anyway, this is the most crucial part of working under a fixed price contract, because as soon as the contract is agreed on and paid, going over the stipulated budget becomes practically impossible.<\/p>\n\n\n\n

\u201cBut what if I do want to change\/add\/remove a feature or two? Can I do that?\u201c<\/em><\/p>\n\n\n\n

If that\u2019s the case, our project managers<\/a> create an extra agreement called \u201c change request<\/b>\u201d. Any changes that occur after the project has been started have a direct impact on both its scope and the budget.<\/p>\n\n\n\n

As a result, the team has to come up with new estimations and include them into the change request agreement, which is either approved or rejected by the client. We also allow 15% of the time budget for the polishing stage.<\/p>\n\n\n\n

\u201cWhen do I choose Fixed Price?\u201d<\/em><\/strong><\/p>\n\n\n\n

\u2022 It\u2019s a short-term project with a relatively simple functionality.
\u2022 You want to make a complete (or nearly complete) copy of an existing product.
\u2022 You have an exhaustive list of requirements at the outset and it\u2019s highly unlikely they will change.
\u201cWhat are the disadvantages of Fixed Price?\u201d <\/em><\/strong><\/p>\n\n\n\n

\u2022 The team of developers is taking all the financial risks.
\u2022 Developers rarely communicate directly with the client. Typically, this role is assigned to a project manager. This means that the success of the project largely depends on how well the dialogue between the client and the project manager is established.<\/p>\n\n\n\n

Time & Material<\/h3>\n\n\n\n

If, for some reason, the scope of project along with other implementation plans cannot be defined at the start and\/or it\u2019s clear that the requirements will most likely be changing <\/b>throughout the development process, choose the Time & Material pricing model. With this type of contract, you are charged an hourly rate for all work along with the costs of materials set by the team of developers.<\/p>\n\n\n\n

As opposed to Fixed Price, Time & Material is all about flexibility.<\/b> The team is free to use any strategy they think is applicable for the project, while you\u2019re able to change requirements and come up with new ideas to implement on the go.<\/p>\n\n\n\n

But don\u2019t forget that the more extra features you add, the higher the risk of exceeding your estimated budget is. However, in most cases,<\/b> performing a project under a Time & Material contract is cheaper,<\/b> since the team of developers doesn\u2019t have to spend much time on elaborating detailed documentation.<\/p>\n\n\n\n

The most significant advantage here is that in a couple of months you will have a working Minimum Viable Product (MVP) ready to be introduced to the market.<\/p>\n\n\n\n

\u201cWhen do I choose Time & Material?\u201d<\/em><\/strong><\/p>\n\n\n\n

\u2022 The quality of the product is the top priority.
\u2022 There is no clear understanding of how the end product should look like.
\u2022 You don\u2019t have detailed product requirements.
\u2022 The fact that you may exceed your budget doesn\u2019t scare you.
\u2022 You want to be able to make changes at any moment.
\u2022 You want to be involved in the development process directly and see how much time the team spends on each commit.<\/p>\n\n\n\n

\u201cWhat are the disadvantages of Time & Material?\u201d <\/em><\/strong><\/p>\n\n\n\n

\u2022 Doesn\u2019t work with small projects.
\u2022 There is a chance you may exceed your initial budget because the final cost of the product isn\u2019t exactly defined.
\u2022 If you have a detailed list of requirements and don\u2019t want them to change, Time & Material isn\u2019t the right choice.<\/p>\n\n\n\n

Fixed Budget<\/h3>\n\n\n\n

Fixed Budget is a great alternative to Fixed Price or Time & Material as it combines the best features of both of them. It\u2019s mostly used when you have a limited budget and tons of ideas for your product.<\/b><\/p>\n\n\n\n

With this type of contract, the team of developers work with the client to get a more or less clear understanding of the end project. Based on the information, the team defines what can be implemented without exceeding the budget. Finally, both parties agree on priorities for the features and the deadlines.<\/p>\n\n\n\n

The client can change priorities<\/b> in the scope over the course of development as long as it doesn\u2019t affect the budget. After the testing phase is finished, the client receives a high-quality product, being able to use it and receive feedback from actual users (and even continue further development).<\/p>\n\n\n\n

The main advantage of this type of contract you can enter a market in just a few weeks and start attracting investments. Also, the financial risk is managed more thoughtfully and doesn\u2019t fall on one specific party.<\/p>\n\n\n\n

\u201cWhen do I choose Fixed Budget?\u201d<\/em><\/strong><\/p>\n\n\n\n

\u2022 You have a bunch of cool ideas, but don\u2019t have enough money to implement them all at once.
\u2022 You want to work closely with the team of developers.
\u2022 You want to have a working MVP within a couple of months.<\/p>\n\n\n\n

\u201cWhat are the disadvantages of Fixed Budget?<\/em>\u201d<\/strong><\/p>\n\n\n\n

\u2022 Doesn\u2019t allow you to change things every now and then.<\/p>\n\n\n\n

Conclusion<\/h3>\n\n\n\n

Choosing which type of contract to sign is one of the key factors to the success of your project development. There isn\u2019t single correct answer when comparing pricing models to find the best one. Each outsourcing partnership is unique in its own way – whether it\u2019s product requirements, business constraints, etc. Both the client and the team of developers should work collaboratively to determine which of the pricing models is the best one to serve their needs.<\/p>\n\n\n\n

\"Looking<\/a><\/figure>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

So you\u2019ve finally found a software development company to implement your idea for a web\/mobile app (or both). But what\u2019s next? What\u2019s with all these pricing arrangements? Which type of contract to choose? 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