• February 28, 2024

Time & Material or Fixed Price: which is more profitable when developing a web service

When concluding a contract for individual software development, various factors are taken into account: the terms of work, its cost and the scheme of interaction with the team. Performers can offer to work on the T&M system or pay a Fixed Price. Let’s figure out what this means and which option is more profitable for the project.

T&M vs Fixed Price
Note that each option has ardent supporters and opponents. But in fact, this confrontation is groundless: for some projects, work with a fixed salary is suitable, for others it will be an unprofitable and unprofitable solution, and it is better to prefer T&M. To decide, you need to weigh the pros and cons of each system and soberly evaluate your business idea.

Work on Fixed Price
Among the main advantages of this approach are a clear deadline for the completion of the project and a pre-known cost. The customer immediately knows how much to put into the budget for the development of a website or application. Entrepreneurs consider this scheme convenient. The work includes several stages:

The customer is determined with the goals and requirements, draws up a clear technical task in order to convey them to the developers as accurately as possible.
Together with the project manager, tasks and specific deadlines are agreed.
The team starts developing according to a clear task, and the customer receives a ready-made service within the agreed period.

But the scheme is simple only at first glance. For example, if after the approval of the tasks you need to make some edits to the project, it will be difficult to do this: you will have to take into account the time and schedule of developers, prescribe and approve a new TOR.

Another disadvantage of Fixed Price is a possible overpayment. The development budget is approved in advance, and outsourcing companies include additional costs that may not be required. This is done to reduce the risks of developers: it is impossible to predict unforeseen circumstances, and in the case of a fixed-fee scheme, these costs will fall on the contractor.

Problems also arise due to the insufficiently detailed description of the TK. At the beginning of the work, it seems that the task is set very clearly, but after that there are discrepancies and misunderstandings. And since the Fixed Price scheme does not imply the constant involvement of the customer in the development process, it can be difficult to eliminate these inaccuracies without harming the deadlines.

From the point of view of performers, such a scheme also has both pros and cons. On the one hand — clear instructions, specific tasks and deadlines. On the other hand, there is less room for flexibility and maneuvers. Usually more attention is paid to speed and compliance with deadlines.

Work on Time&Material
It is not known in advance how much it costs to develop a web application using the Time&Material system. This scheme of work is much more flexible than Fixed Price, and it may seem that this unpredictability is a big minus. But the reality is different. For large-scale projects, T&M will be a profitable option, because the customer pays for specific work upon their completion. This does not include possible risks, the contractor does not need to “insure” against force majeure.

Stages of Time&Material work:

The project manager receives the order and splits it into sprint tasks.
Together with the developers, he estimates the time it will take for each of them, and provides a report to the customer. If both sides are satisfied with everything, the team proceeds to the first task.
After the completion of the first stage, the customer pays for the work performed, and the developers move on to subsequent tasks.

The big advantage of this approach is the constant contact between the client and the performer. The exchange of information allows you to track how the project is developing and solve emerging issues immediately. In the process of work, you can add or remove individual tasks, if the business plan requires it. At the initial stage, a detailed technical specification for the entire project is not required from the customer, and the team starts developing immediately.

Time&Material collaboration is often more transparent than Fixed Price. The client sees the specific results that he pays for, understands what the total price of the product is made up of.

The main drawback of payment upon completion of work is the inability to accurately plan the budget. It is difficult to predict how long it will take developers to complete the project completely, and how much it will result in.

The evaluation still happens: the performer calls the approximate price in advance. But in the end, the client can pay both less and more compared to the initially stated cost. For example, if unforeseen situations occur, their payment in case of work on the Time&Material model falls on the customer.

Which model to choose in the end
This choice is always left to the customer. But we can give general tips to help you decide.

Fixed Price is better suited if:

You have a small project without complex business logic, and you know what should happen in the end.
You are ready to spend time and create a detailed task for developers for the entire project.
The development budget is strictly limited, it cannot be adjusted.
It is worth choosing Time&Materials when:

The project is large, the service has non-standard logic, a large number of functions that take a lot of time to implement.
You are ready to get involved in the development process, spend time discussing the project, want to be able to adjust the TOR in the course of work — make edits and improvements.
Do you want to start development as early as possible, do not waste time, perhaps — quickly get the MVP of the product. The speed of development is especially important for startups.
Instead of a conclusion — our experience
The KozhinDev team prefers to interact with customers using the Time&Material model. We love complex projects with atypical solutions, and most often their cost cannot be estimated “on the shore”.

In our practice, there are cases when the customer initially chose the Fixed Price scheme, and we made a service for him according to a clearly stipulated TOR. But later the project required development, new requests and needs appeared. Then we offered to continue cooperation on T&M, and the client agreed. Experience shows that this form of work is more suitable for long-term interactions