According to a leading mobile app development company, two of the pricing models that are most commonly used are Time/ Material and Fixed Price contracts pricing mechanisms. These two are the most renowned practices followed by service consultants while pricing their development services.
Both methods have their own advantages and disadvantages to both the parties involved, i.e. the client and the consultant. Some consultants prefer Time and Material pricing mechanism to avoid the downsides of Fixed Price while some companies may opt for adopting a fixed pricing strategy. Both these, pricing structures have their own individual pros and cons and should be implemented in accordance with the development requirements.
To get a clear understanding, let first dig deep into both pricing mechanisms for actually deciding the better one.
The Fixed Price mechanism specifically defines the service provided to the client and then sets a Fixed Price for the project irrespective of time and material that is spent in completing the project. On the other hand, in Time and Materials pricing mechanism the mobile app development company charges the clients for hours spent on the project in addition to the expenses incurred to complete the project. The client who has agreed to pay as per Fixed Price model can make payment in installments. The payment for the project can include a down payment as well as several installments over the period of contract when the milestones are met.
For the mobile app developer, the Fixed Price model is ideal when the client project can be completed within a shorter time frame. For example, a mobile app that can be built from pre-existing templates where a large amount of work is already completed before the client actually awards project.
The client might also prefer a Fixed Price model because it is easy for both parties to set a budget for such project. The Fixed Price Model will not be ideal for projects where clients and consultant have not arrived on a detailed agreement on what has to be included in the project.
A consultant or a technical intermediate may be required to put several hours of work without compensation if the project does not have proper specifics. For an organization, such condition can give rise to a feeling of being underpaid for the project.
Time and Materials
When the client and the mobile app development company agrees on Time and Materials pricing model, the mobile app developer can ensure they are paid for every minute spent on the project regardless of how long is the project timeline. In this pricing model, the client has more freedom to change project specifications or can add new components to the project when required.
As the client is paying for the time, the mobile app developer readily accepts such requests. In Time and Materials pricing model, larger the time spent on the project is directly proportional to the invoice illustrated. A Major problem that arises is when the budget of the client crosses the boundary that had been set before proceeding for the app development. So, as a result a minor friction may develop between the client and the organization.
Which one is the best pricing model?
There are no inherent advantages of one pricing model over the other. Flexibility is an important factor that draws the line between the two prescribed pricing models. Time and Materials offer maximum an extended scalability to your project. If the client is not sure about what he wants exactly, the Time and Material mechanism is without a doubt the best option.
It will allow the client to request for changes once the module development had been initiated, and in case if new ideation strike during the project, the same can be obviously inculcated in the later stages of development. In the Fixed Price arrangement, a lot depends on the specifics and the consultant might not agree to the changes or can associate a price tag for changes. If the requirements of your workflow are clear, the Fixed Price Model might work best for you.
In such cases, you are able to provide sufficient information to the mobile app development company to define the scope of the project and accordingly develop a reasonable bid.
The Fixed Price model helps in better management of risk, but you might be paying a premium for it. For example, your project, which has a budget of $250,000 might get completed in $200,000 in the T&M pricing model as the specification changes more frequently.
— OctalInfoSolutionUK (@octaluk) May 4, 2017
Picking the right pricing contract is important for the overall success of the project. You need to choose the pricing model wisely looking at the advantages and disadvantages associated with it and must underline your exact project requirements in order to meet deadlines within a stipulated time.