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Harry was always a very frugal
person - both in a private life and
at work.
I'm looking for a
remote software house
in order to build my
website.
You can guess, that his main aim was to
save money as much as possible.
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As his startup was just fledgling, he wasn’t
sure how the website should be created.
However, there was one thing he wanted
to know immediately - the price!
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In the face of so many uncertainties, web
development company couldn’t estimate
the whole project at this stage. This is why
they offered the best possible solution for
both of them - time&materials model.
Harry felt really nervous - he has never heard
about this term before.
He can’t approve of something like this. He
must know the price!
Or they establish fixed prices or there will be
no cooperation!
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Poor web development company had no
choice - they had to overstate the price, just in
case of unexpected market changes.
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So in the end, many unexpected changes
weren’t included in the agreement so the
project has been finished and there were still
many features to add!
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Well, not only has Harry not saved
money, but he also had to spend at
least twice more in the end!
If only he had chosen time&materials..
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I guess you don’t want to make the same
mistake as Harry?
Is so, familiarize yourself with the
“time&materials” and “fixed prices” terms and
choose the approach wisely, on the basis of
your actual needs!
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FIXED PRICE D E F I N I T I O N
Fixed price (or a lump sum contract) is an
arrangement, which contains clear requirements
that will not change. The precise budget for the
project and deadlines are established from the
beginning. This model of pricing methods works
very well, when the scope of the project is small
and outcomes are highly predictable.
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BENEFITS AND DISADVANTAGES O F A F I X E D P R I C E A G R E E M E N T
P R O S
Transparency. As all requirements, deadlines and costs
are set down in advance, the client has a sense of the
security - everything is determined in the arrangement.
Predictability. The company can plan the budget for all
the ongoing projects upfront. They are certain that there
will be no additional outlays.
Small involvement. Initial negotiations could take some
time.Then, everything is included in the contract -
responsibilities, tasks and the general cooperation
expectations. In this way the client doesn’t have to spend
additional time on controlling the provider’s performance
on the particular stages of the project. He just waits for
the final effect.
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C O N S
No flexibility. If the need arises to make any changes, it
could be rather difficult to put into practice. Both sides
have to strictly stick to the contract. It is a big limitation,
especially for the customer, that doesn’t have a chance
to add any new feature during the course of the project.
Variability of the final cost. The price of the project is
only estimated in the beginning. However, it can’t
change, after achieving the ultimate result. It happens,
that the final cost of the work is different than it was
assumed. For instance, it can be smaller and the client
will lose some of his money in this way. Nevertheless, the
die was cast. It’s a customer’s risk while deciding on a
fixed price model.
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C O N S
Little control of the project. After determining your
expectations in the beginning, then you will be
usually waiting for the final result. It means, you
won’t be able to follow and control every progress
made in your project, because everything must be
established in the agreement.
Lower quality. The software provider is limited by
the price established upfront while choosing
materials. It could influence your project negatively -
outsourcing company may mainly focus on not
exceeding the budget and maximizing their margin.
As a result, they could decide on using a lower-grade
materials, just not to overrun the fixed price.
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TIME&MATERIALS D E F I N I T I O N
Time&materials is much different than fixed price model,
because in this case you pay exactly for what has been
done. It means, the software provider bills you on the base
of hourly rates of labor and costs of materials. This type of
pricing model works, when you are not sure about the
shape of the final outcome you want to achieve and the
scope of the project is big.
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BENEFITS AND DISADVANTAGES O F A T I M E & M A T E R I A L A G R E E M E N T
P R O S
Flexibility. In this case, you are able to change, add
or remove any feature you want, no matter what
kind of stage the project is. Project’s requirements
won’t be a limitation - you can always adjust them to
the changing business circumstances. So you won’t
waste your time on renegotiation the agreement, as
it is in the case of fixed price.
A lot of control. You can take an active part in the
process of creating your vision. It means, you have a
real influence on the final outcome. With your
contribution to the project, it will be much more
easier to achieve the goal you desire. You and
developers become a team members that are
working together towards the same aim.
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P R O S
Time saving. It’s much faster to sign a time&material
contract. You don’t waste time on bidding the offer or
determining requirements in a rush. Web development
company is ready to kick off a new project as soon as
possible. All details will be adjusted to your expectations
during the course of the project.
Money saving. By choosing fixed prices, software house
charges you more for the uncertainty - they only guess
how much the cost of product would be. With a
time&material agreement you will pay for the actual
results, not for the price assessment.
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P R O S
Agile methodology. Using this method will
influence on the final outcome - the quality of
your project will be much higher. How does it
work? Software provider builds the plan of your
project and then divides the process of
development on a few stages, called “sprints”.
At the end of every phase, everything is tested
and consulted with a client’s representative. It is
a perfect moment for his feedback concerning
possible changes and improvements.
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C O N S
Less budget control. Your company has usually
a determined budget for particular projects. By
choosing time&materials, you have to be aware
that sometimes costs can increase more than
expected, if the scope of the project changed
significantly. For example it can turn out that you
needed many more features than you assumed in
the beginning. In this case the cost of the final
result will be higher. However, you will achieve
the product you are satisfied with.
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C O N S
Deep engagement. On the one hand, the
possibility of having a big impact on the final
outcome is a relevant advantage. On the other
hand, controlling every stage of the project
requires a lot of time. It means, there should be
someone responsible for this activity in the
company, what can become troublesome in the
long term.
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AND THE WINNER IS.. There is no winner here.
Choosing an appropriate pricing
model depends on many factors,
like the scope of the project,
your company’s goals or the
budget.
Dotinum is a software house and
creative agency from Poland,
established in 2002.
N E E D A H E L P W I T H B U I L D I N G T H E
W E B S I T E O R M O B I L E A P P L I C A T I O N ?
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