There was a time when businesses had to rely on fixed price model for outsourcing agreements, as it seemed to the only option available. But today there are different kinds of models that are gaining popularity called the time-and-material business model. Due diligence is necessary in choosing the right pricing model, as it should befit the company’s procedures and can make sure that your business goes according to the plan. It should be selected accordingly that it suits the requirements which have been contracted and also the expenses likely to incur.
Even though this is a more common kind of pricing model, some companies do try to perk it up a bit by incorporating their additives. Going through this article might help you understand more about the pros and cons of choosing between fixed price and time-and-material for your software projects.
Know the fundamentals:
When the contractor agrees to complete the project within the agreed single price executed in the contract, it is called Fixed Price agreement. If the client has fixed, predetermined requirements and specifications regarding the cost, this would be the more suitable kind. Small projects and MVP’s can make the most out of Fixed Price agreement.
In time and material contract the hours of work done are taken into consideration and charged accordingly. It is thus billed for the actual hours of labor put in for the project. It does not follow a predisposed path and is more susceptible to change its discourse. This could mean additional amount may be incurred. Time and material contracts are much more flexible and can be adjusted if and necessary to meet the requirements and scope. It is more applicable to long-term projects and to such projects whose scope of work is not defined.
The pros and cons: Fixed Price agreements
Everything is predetermined and laid out before-hand from expenses to the scope of the project. The Client will not be burdened with unforeseen expenses and does not have to worry about uncertainties.
The client follows the system of pay per percentage of work done in case of fixed price agreements.
The major disadvantage of fixed price agreement is that there is no scope for flexibility. No opportunity for adjustments once you are into the project.
There is lack of accountability or supervision as everything is been set out in detail in the contract. The team members are responsible for the management and it solely relies on the input from them.
The pros and cons: Time and material
The major advantage of time and material is that there is much greater flexibility. Modifications and adjustments can be made in the due course of the project. It focuses on Agile development and the scope of the work can be changed whenever necessary. This can ensure dynamic work scope. Even if the client does not have a detailed Scope of Work in the beginning, this type of agreement can suit them better.
Time and material agreements help to save time and monitor how the time is being spent and on what aspects.
It might not be possible to exercise control over the budget. It can go way up than the original estimated cost.
Unlike other models, this calls for deep involvement from the client. Time and effort should be invested to make sure that the project adheres to the scope of work and to get detailed invoices on the work done to conform to the actual billed work.
Choosing the right pricing model for your business might be a complicated process than ever before, taking into consideration many facets of the project. It should be suitable for the contractor as well as the client. Getting the pricing model right is one of the complex things that just can’t go wrong. One must choose a model that best fits their project. Every other pricing model may not just work for you. Hence one should select an agreement that fully encompasses the dynamics of the work.
Every aspect of the model should be studied in detail to understand whether fixed or time and material model is the best choice for you. And if you stumble upon choosing the right model, we can help you decide better. Ask for a sample model from our team and we will provide the right one for you by analyzing and gaining an in-depth understanding of how your project works.
What does Nubeslab offer?
From the inception of the project, our business analyst will guide you in choosing the right pricing model for your project development. If the above mentioned still does not work for your requirements, we will be there to understand more about your needs and will assist you with unique models that will help your project or start-up achieve the growth you forecast.