Software development outsourcing works primarily with two pricing models and contract types: fixed price project and time & material. When deciding which model to use for your software development project, it can be difficult to know exactly what is best. We will discuss the fixed price model’s advantages and see where and when to use it. In case you do not know what a fixed price project model is or if it fits your individual needs, you can find all the information here.
The Fixed Price Project Model: What Is It?
Fixed price software development is a kind of partnership between the customer and the vendor where everything is pre-determined – all the requirements, schedule, scope, and budget are set up beforehand, with no additional clarifications or changes added throughout the development process. Once you figure everything out, like outline all the requirements, establish the project deadline, and determine the budget, it’s time to follow through. Now, all you should do is pay your vendor once and end all your paperwork. Many companies might view this model as the obvious choice since it is rather straightforward.
There’s a catch, however. As with any model, there are advantages and disadvantages, which is why you should take all of them into account to choose the one that fits your business and requirements. Firstly, let’s examine the definition of a typical fixed price project and the preparations you’d need to make before getting started.
Short-Term Fixed Price Software Projects
Typically, fixed price software projects take 2 to 3 months to complete. The developers can create a demo, a basic MVP or add new features to your existing solution within that timeframe. The chances are low that your team will be able to build a fully functional large-scale solution within that time frame, so you shouldn’t count on it.
This pricing model may be just right for you if you want to build an application and need a demo or minimal value product (MVP) sample for it. To determine the fixed cost of one’s project, you will need a detailed list of specifications for the product that your vendor must meet. Only then will both you and the vendor be able to determine the price of the whole project.
Before You Take the Leap
If you want to negotiate the price of the project with your potential vendor, you should have three things ready: project specifications that include a detailed description of all the requirements, a design mockup with implementation-ready UI and UX, and acceptance criteria that will be used after the product has been developed.
It is vital for you and your vendor to know all three of these things in order to determine the exact price. However, a project’s scope can change if requirements and specifications are unclear, which can lead to changes in time and effort and, consequently, price changes.
Benefits of the Fixed Price Model
Now that all your requirements and specifications are set, you’re ready to begin working with your vendor. Considering all factors involved with a fixed price project might be a good idea at this point. As your money and your product are on the line, you will definitely want to evaluate all your options.
Your software development partner will achieve certain milestones throughout the development process, and at each milestone, they will show you a new build with new features. You will be able to follow the project’s progress by reviewing the new features and improvements regularly. By keeping track of the delivery timeline, you will be as involved in the process as you need to be. Testing and polishing will take place at the final milestone.
Assurance of Predictability
Partnering with a professional team of developers like the Hexa Origin Technologies project means you will get exactly what you pay for. With the fixed price software project, you can be almost 100% certain of the end result if you choose this cooperation model. If you want to be sure that the results will be predictable, you must partner with a vendor who has experience in delivering similar projects.
As soon as you agree on a price, you’ll know where the project is heading. Furthermore, you have a clear deadline that makes business planning a lot easier. You will also be able to monitor progress throughout each milestone, which makes it much easier to manage. Finally, having the developers report back to you regularly encourages a transparent and open relationship between you and your vendor.
It is much easier to maintain a successful working relationship when both parties understand the contract details. Fixed price contracts provide a very clear value over the life of the agreement with little room for disagreement.
The lack of any complex contract escalators or clauses also diminishes the risk of misinterpretation that often leads to civil court if the contractor chooses to sue and enforce the contract as he or she interprets the agreement. This could make your small business lose much more than the value of the contract.
Fixed Price Project vs Time & Material Model
In contrast to the fixed price project model, the Time & Material model, or cost-plus model, is the second type of collaboration between yourself and your vendor. It is used when certain or all of the requirements and specs are not known at the beginning of the project, meaning the scope of the project might change during development. As a result, the cost of partnering with the vendor also changes, so you can’t really quantify it.
As the name implies, the price is determined by the amount of time and materials spent during the development process. Though you can make estimates and figure out the approximate cost for software development outsourcing together with your vendor, the final price will be determined once the project is all but complete.
So now that the basics are over, what model would you recommend for your project? There are several factors to consider in order to make the right decision. You can use this checklist to decide between time and materials and fixed prices.
- Managerial Control
- Kickoff Speed
- Development Speed
- Client Involvement
If you compare cost-plus and fixed price project models, you will find that each model is appropriate for certain types of projects. As an example, if we were adding a few new features to an existing app, a fixed price would be the most sensible choice; however, if we were talking about a large-scale project with numerous variables, time and materials would be recommended. This depends on how well you understand the scope of your project and what you need.
Fixed prices eliminate the hassle of paying hourly rates and all that other nonsense; pay the agreed amount and wait for the end product. If you use the time and material model, everything can change while you are working, so you would have to be more involved in the process.
We hope that the aforementioned info will help you reach a decision that you won’t regret when you are about to embark on the journey to build your custom software solution.