When hiring a team of developers, a product owner comes across various pricing models, each with its benefits and drawbacks. Without a doubt, both sides have an interest in picking the most suitable and beneficial type of cooperation. Chances are, you have heard about the two widely-used software development pricing models, time-and-material and fixed price. And now you are at the crossroads: you need to decide which outsourcing agreement is better for your company. Of course, it would be so much easier if all the decisions could be made by tossing a coin, wouldn’t it? But let’s be realistic, this is the case when weighing all pros and cons is a must. To help you make the right choice, we have prepared this informative article. Everything you need to know about Time-and-Materials vs Fixed Price patterns is here.
Even though a lot of companies often combine the two models creating unique agreements, we suggest that you read some general info about each to have a better understanding of what time-and-material and fixed-price contracts are.
When it comes to software development, there are a couple of questions every customer asks their contractor first. They are the following:
Let’s see if the fixed price and time-and-material pricing frameworks can give answers to each of the questions.
As one can tell from the name, a fixed-price model (also known as a firm-fixed-price model) stands for a type of contract in which both sides a client and a vendor agree on the scope of work, the deadlines, and the amount of money needed for the project implementation before the process of development starts.
A fixed-price contract can be paid one time or in several payments during a pre-agreed time frame. Even though the scope of work is fixed, there’s a decent chance that you might need to implement some additional features along the way. This may result in shifting the deadlines and increasing the costs.
A time-and-material contract, as opposed to a fixed price type, offers more flexibility in terms of development time frames and budget required. Within this billing model, a client pays for the actual scope of work that is done by a services vendor. The price is formed from the amount of time a team of developers has spent on a particular project and the costs of materials used. The hourly labor rates are agreed upon by a client and a contractor beforehand. As for the payment intervals, they are also flexible and negotiated in advance.
Paying for software development isn’t the same as buying products in a grocery shop. A project tends to change and grow which often requires more time and expenses. That’s why most would agree that a time-and-material model is better compared to a fixed price framework.
There is no perfect solution. Both pricing formulas have their benefits and drawbacks. Let’s have a closer look at them.
Let’s now have a quick look at what projects can be completed within the time and material model:
Setting a fixed price looks like a perfect option at first. However, it is not all rosy as it may seem.
To help you decide whether the fixed price pricing formula fits you, we suggest that you determine the size of your project first. Fixed-price contracts are most appropriate for projects like these:
So, answering the question, “Which pricing model is better, time-and-materials vs fixed price?”, we’d say, “The T&M contract is slightly ahead of the fixed price system due to the flexibility it offers”. Nevertheless, they both are good. If you have a small-scale project, tight deadlines and/ or an MVP, the fixed-price pricing pattern will fit the bill. On the other hand, if your project is quite big and complex and you need more flexibility when deciding on features and so on, it will be better to choose the time and material.
We at Yojji have had the experience of working with both fixed-price and time-and-material pricing models. Due to this, we consider ourselves competent enough to compare the two pricing frameworks and give you pieces of advice regarding which one to go with. Frankly, we are used to working within the T&M model. However, if a project requires a different approach, the fixed-price agreement isn’t off the table. Let’s say, you need to build an MVP for an application. To kick-off, we can go with a Fixed Price. Later on, if you find the result of our work satisfying and you need to create a fully-fledged and feature-rich app, we can shift to a Time-and-Material type of billing.
Feel free to get in touch with us if you have any questions.
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Yojji successfully delivered the project within schedule. They demonstrated excellent project management via weekly sprint demos and promptly made adjustments based on the client's feedback. Their responsiveness and collaborative attitude were key elements of their work.
5.0
Yojji was an instrumental part of the client’s team, working closely with them to achieve the product’s success. The team was very collaborative and timely, and their performance was amazing. Additionally, their resources were experienced, professional, and enjoyable to work with.
5.0
Yojii is impressive both in quality of development work as well as their commitment. Strong focus on delivery, highly technical personnel, flexible approach that allows for rapid development. Strong processes that allow for solid controls.
5.0
We’re very happy with the way that Yojji works, which is why we’ve spent so much money and engaged them for such a long time. We treat them as employees in regard to responsibilities and expectations, and they haven’t disappointed us.
5.0
As a company, we find Yojji to be excellent development partners - we cannot recommend them more highly and will be very happy to continue working with them in the future.
5.0
They are really nice people with excellent technical backgrounds.
5.0
We used Agile project management methodology and were in contact with the team and project manager daily.
5.0
They all had a super positive outlook and were dedicated to getting the work completed to a high standard.
5.0
Yojji has delivered an accessible product with thorough consideration for the client's requirements. Users have commented on the platform's user-friendliness and speed. Moreover, the team is easy to communicate with and provides frequent updates. Their development and design skills are impressive.
5.0