Fixed Cost or Hourly: Which Pricing Model is Right for Your Project?

When choosing the model of cooperation with IT company, client and the company both should focus to opportunities that open this or that pricing model since it increases chances of getting a positive outcome and minimizes risks for both parties. Among the most popular pricing models, Time and Materials and Fixed Price are the two major pricing models in the field of application and software development. Each type has its pros and cons; therefore, is difficult to the choice between them. The option that is ideal for one project may be far from ideal for another one. As another option, one can compare the pros and cons of a specific pricing model and select the most suitable option based on a specific project type. This is clearly the best option. So let us take a look at this issue in more details.

1) Fixed Price Model

As the name implies “Fixed Price model” comes with the fixed estimated budget on the project which is agreed and approved before the project development starts with a very low or no scope of any change or modification in the project. Also, the timeline must be approved before project development starts. The risks for late execution of works will be borne by the contractor. On the one hand, this model may appear advantageous for you, as a client, as you will be aware of how much time, effort and money the project development requires before the development starts.

The customer is pretty sure about the success of the application and so he’s ready to take the risk. With a small budget estimate, the project is not complex. One doesn’t require a big team to develop it as the task is simple.

One must remember the fact that no changes are allowed once the terms and conditions are approved and the agreement is signed under any circumstance. Therefore, the client should be very clear about what features & functionalities want to integrate into the application.

However, the disadvantage of this model is that compare to the project quality you are giving more preference to your budget. So, one must prepare to take the risk and face failure if the application idea does not click as per your expectations.

But there is always a sort of financial ‘airbag’ provided by app development companies to deal with the wrong, which is included in the app pricing.

Key features of Fixed Price Model are:

  • Budget or cost will be fixed which does not change and remains static.
  • The fixed amount of work where features and functionalities will be prefixed which will not be changed once development starts.
  • Even the project deadline is fixed.
  • Not able to make changes or additions after the Contract is approved and signed.
  • Development rates are higher.
  • Possible compromises regarding the product’s quality.
Below are the conditions when Fixed Pricing Model will Suit your Needs
  • When you want to build a simple app with easy features and not so much of the complex tasks involved to develop it.
  • When you have a tight budget and left with no other alternative so at that time Fixed Price is the perfect model to select.
  • The time when you are planning to develop an MVP (Minimum Viable Product) or an Application Prototype to test the validity of app’s idea.
  • When one must have a crystal clear idea of application with reference to adding features and choice of platform etc.

2) Time and Material Model

This model is also known as an Hourly Rate Model and yes don’t be confused by the word «Time» in this model, Time and Materials contract does not mean that you simply pay for the developer’s time. The mantra of this model very straightforward. The cost of the project is based on hours worked, which may vary from company to company and from region to region.

Let’s see how it works:

  • The Project is divided into separate tasks, where each of them will be estimated separately so that you have the opportunity to make any changes or additions during the project development.
  • The team assigned for the project will assess the first task and gives you the data like estimated man-hours are necessary for task’s completion and implementation.
  • Next step is task estimation which will be generated by multiplying man hours and developers rates. If you agree with the sum — we start.
  • When the defined task is done and client have a visible result — client pay for the work of the team (payment can occur instantly after the sprint, monthly, quarterly, etc. — as client prefer).

Working on the Hourly pricing model, the team or the developer working on the project will be interested in delivering quality results on the most suitable time, as this ensures the possibility of further successful cooperation.

The drawback of this model is additional communication with the company with each task from task development starts to implementation, although this may be the plus as while discussing project details, you always know that on what stage your project is, where it moves and may add changes or improvements in it.

Below are the cases where Time-and-Material Pricing Model is Successful
  • If you don’t have a clear app idea and you are not sure about validating it, the hourly-rate approach will definitely suit your needs.
  • When the developers are working a complicated project, it requires client approval and subsequent testing.
  • When you wish to directly involved with the project and want to know how the team and developers are proceeding with the given task.


Fixed Cost Vs Time & Material: The Final Call

Well, we have discussed in detail about both the most popular & well-known pricing models that almost all the mobile and Web App Development Companies follow today while serving or developing any project. It can be said that both have their benefits and drawbacks. And it depends on the budget estimate and specific requirements of the client as to what he chooses.

Let us share you that if you are selecting a fixed cost model over hourly rate model then you are compromising with the app quality and not getting any scope for changes. Alternatively, if you are going for the hourly rate (Time & Material), you can get the product as desired but your cost would definitely be on the higher side.

Kanhasoft is the Mobile and Web App solution developer in India and USA. We follow 3 project models: Fixed Price, Dedicated Resources and Hourly based Resources. Choose the best one which suits your budget and business needs.  Come to us with your development requirement today.

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