Fixed Price vs. Time and Material. What Type of Contract Should I Choose?

When you want to outsource app development, there are mainly two types of contracts you can sign with a software house: Fixed Price or Time and Material. They are completely separate and fit different kinds of projects. Are you wondering which type of contract to choose for your project? Let’s find out.

What Is a Fixed Price Deal?

It’s a standard, single-sum contract. A software development company is responsible for completing a project according to requirements and specifications precisely set out in the agreement and does that for the previously agreed sum. A Fixed Price deal presupposes estimating the price for the whole project in advance. The cost is settled on the grounds of client’s requirements and work schedule. A client chooses features he wants is an application, and a software house assesses the price (number of hours needed to develop every feature multiplied by an hourly rate). Before the final scope is settled, the client can pick features freely. Then, if he wants to change the scope of the project and add something, the cost of that change is calculated in the same way.

Before signing a Fixed Price deal, a client should be able to share the most precise vision of the product with a chosen software house. A Fixed Price deal doesn’t allow any subsequent modifications. Even if you resign from a part of work after the kick-off, the price won’t go down, what is more, even that kind of change can be related to costs elevation. A Fixed Price deal is generally more expensive because even though a project is highly transparent and planned, a software development company takes into account a reserve in case of any unexpected complications during the implementation — the settled amount is increased for security purposes.

Even though a Fixed Price deal is not flexible, there are situations when it will be the best choice for you.

When to Choose Fixed Price?

A Fixed Price model is useful when the project is highly predictable, specifications and requirements are precise, because every change is related to additional cost. It’s convenient for projects that can be precisely estimated before the start of work. Fixed Price is also a good choice for smaller projects with limited scope.

  • for a highly predictable project,
  • for a project with clear requirements and specifications,
  • for a smaller project with a limited scope, when the risk of non-compliance with client’s requirements is low,
  • if you can’t regularly participate in the implementation, frequently monitor the progress and give your feedback — a Fixed Price model will be safer for you,
  • if you don’t have a specialist in your company that can continuously track the progress and give feedback to developers (of course you can be this specialist).

What Is a Time and Material Deal?

Time&Material is a contract where you pay for the number of working hours multiplied by a previously established daily or hourly rate. In the case of Time and Material agreement you pay for the work that was executed and in general you pay less because the software development company doesn’t add any safety premiums.

To sign that kind of agreement with a software house you don’t need to have highly specified requirements. Time and Material deal presupposes that the progress in a project is presented to a client systematically. It allows you to make flexible decisions about further development. That kind of deal makes you and your app development team focus on delivering the best quality as fast as possible. The development is faster, project management is excellently organized, and you start sooner (there’s no need for polishing detailed specifications in advance). The model requires transparency from a software development company which means less risk.

When to Choose Time and Material?

Time and Material agreement is the best option when you have a general vision of your product’s functionalities, but do not have detailed specifications. With Time&Material contract all you need to determine is your basic requirements and functionalities of the product — the details will be elaborated in the next phases. This settlement is cost-effective for big projects, when the amount of work is hard to determine or you know in advance that requirements will be changing during the process. It’s convenient for clients who like to keep track of the progress and give feedback to a software house.

Choose Time and Material:

  • for projects without detailed specifications,
  • for bigger projects where it’s hard to determine all requirements in advance,
  • when you know that requirements will be frequently changing (when that’s a specificity of your project),
  • if you have relevant competencies and knowledge to track the process and give your feedback (or you have such a person in your company),
  • if you have time and willingness to participate in the implementation actively,
  • if you care about starting a project faster.

Fixed Price vs. Time and Material in App Development

In terms of app development projects, it’s efficient to develop Minumum Viable Product (MVP) with Fixed Price contract because the specifications and the scope of a project are relatively easy to asses. In the case of a bigger project, in most cases it’s better to choose Time and Material contract. Time and Material is a model that works perfectly for mobile app development and fits great with the Agile methodology. The deal in most cases allows you to obtain a better app because you and your chosen development team are flexible, can prioritize functionalities and adapt to changing circumstances.

Of course you can mix both types of contracts and for example, develop MVP with Fixed Price contract and then switch to Time and Material for further implementation. Software development companies are open for such operations.

At Appstronauts we adjust contract type to project specifications and help our clients decide which solution is the best. We’re experienced at app development and great at project management. We value the quality of the final product, and always do our best to deliver it on schedule. We also think that the know-how is crucial for a mutual trust, so every member of Appstronauts team has practical knowledge to deliver the best solutions. Apart from that, we’re a bunch of fellows, and we treat our clients in the same way. We admire the cooperation on the principles of partnership.

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