Time & Materials and Fixed Price are two of the most dominant options when it comes to choosing a software development company for your project. Selecting one that provides you with the right pricing contract can be tough, especially if you don’t know what you might be missing out on when your primary goal is to scale your digital product. While on a fixed price agreement you’re paying for each completed task, on a T&M contract you will be paying for the time, labor hours, and resources spent completing your project.
Whether you pick one or another, you will need to know all of the project's specifics, timelines, price plans, and whether you’re able to manage the project at any time you wish.
Let’s take a look at what T&M vs Fixed Price contracts are, their advantages and disadvantages, as well as which one might be the best option for your software, web, or mobile app development product.
A time and materials contract means payment for the effort based on daily or hourly rates. You will be paying for the amount of work, the hours and days that developers spend to complete your software, web, or app development project. T&M performs best when the digital product is more complex - this can seem like the company can inflate the project time and budget to infinity but really, that’s not the truth. Consider signing for a time and material contract when under any of the following circumstances:
Now let’s take a better look at how time and materials contracts work and their pros and cons.
Simply put, a time and materials contract outlines how a company will pay a contractor for the time they spend working on a project, as well as the materials they use to develop the digital product. Again, a T&M contract is ideal when the duration of the project is undetermined but the labor involved has a fixed hourly rate or daily rate. For instance, here’s how a time and material contract works at Imaginary Cloud:
Pros:
The main reasons clients pick the time and material model are pretty obvious - quality, control, and flexibility. But there are benefits galore to choosing this model, being the main ones:
Cons:
Some of the drawbacks of time and materials include:
A fixed price agreement or lump-sum contract is characterized by fixed product requirements and a fixed project cost. Under the lump-sum model, the contractor submits a total project price instead of charging for each individual task or hours taken.
Fixed price works best for SMEs software projects and business solutions that are of low complexity. A fixed price agreement is usually used under the following conditions:
Pros:
Cons:
If you hire part of your software development work to a third-party, you may think that the best type of agreement to sign is fixed price: here, you set the scope, they promise the time and price, they deliver, you check the quality, and you pay. It sounds right, but in reality, it could not be the right fit for your project as you might come to find that you need to make additional changes that you will not be able to make for being under a fixed price agreement. Also, according to Techreviewer, only 16% of companies prefer working with a fixed price model.
A Time and Material contract, on the other hand, will tell the company how many resources you need: they give you a quote per day, you manage them with the help of a PM, they build a plan for you, and you agree to how much time and resources are needed to complete your digital product - this is much more effective as the T&M contract model is manageable since day one.
In case your final briefing is close to the initial one, the budget defined at first won't change much. Plus, if you need to make changes during the development process, depending on their complexity, you know what you can expect and the price to pay won't be as different than the one previously agreed.
At Imaginary Cloud, we offer clients a Time and Materials contract model because we are aware of the complexity of the projects we work on, and that are impacted by internal and external factors that need to be addressed throughout the development process to ensure it delivers towards the initial objective. Only T&M contract provides you with the flexibility to address these ever-changing needs.
We help you identify the specific needs and objectives of your software, web or mobile app, as well as assemble a team of the right people to make it happen. Our PM and development team has vast knowledge in project evaluation, allowing us to make a very reliable estimate of your projects, always ensuring the flexibility to adapt to your requested changes.
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