Fixed price projects vs. Time and Material - what’s the right choice
Nowadays, it's becoming more and more common for companies to cooperate with a software development company on solutions they need, instead of doing it within the company. And choosing the ideal cooperation models is probably one of the first and most essential things you do while starting your cooperation.
This article will help you understand two major cooperation models, their advantages and disadvantages, and guide you through the proper decision-making process.
What is a Fixed Price Project?
A fixed-price model guarantees a fixed budget for the project, despite the time and expense. The primary benefit of such a model is that the company can pre-plan an exact budget. It is more fitting for projects with precisely defined requirements that do not change easily since extra changes require recalculating the initial budget and an additional contract.
Advantages of fixed-price projects include:
- Clear and transparent conditions
- Completed within established budget and terms
- Minimum management/supervision is required (you leave all the work to developers)
- Low risk for clients (works best for small trial projects)
What is Time and Material (T&M) Project?
Time and materials models set out costs for materials and time-oriented labor rates. The company is required to pay at those predetermined rates for the hours and material spent and used to complete the project. Despite this payment method, this model usually has a maximum price limit. T&M projects specify some details but are generally open-ended and long-term.
Advantages of T&M projects include:
- Easily adjustable to changes
- Flexibility in financing (paying only for time and material)
- More control over the project by the company
- Navigation and supervision of the development team to get the best results possible when changes occur.
When to choose each of the options?
You can safely choose a fixed project when:
- It is a small/medium-sized project.
- You are sure that the requirements for the project will remain unchanged.
- You have a limited, predetermined budget for the project.
- You do not have time (or are unwilling) to have constant supervisory meetings with the development team.
- It is a low-risk project; thus, you can give control to the development team.
- You disregard the delivery time, meaning that you are still liable to pay the predetermined amount if the project is completed earlier than its deadline.
- You have given the development team a clear outline of steps, expectations, and needs.
You can safely choose a T&M project when:
- It is a long-term or complete project.
- You do not have strict, predetermined requirements, or they are likely to change.
- You cannot give the development team a clear outline of steps since you do not know the full scope of the product yet.
- You want to maintain complete command over product development; thus, you must guide the development team and have constant meetings and supervision over their work.
- You cannot stick to a fixed budget and need flexibility both financially and in the working process.
- You are willing to pay only for the time spent developing the product.
We, at WeProfit, guide you through your decision-making process. Learn more about our services and request an onboarding to learn more about what we offer for your specific project.