Time and materials vs. fixed price – which model will work better for building your app?

Nowadays, almost every development project uses one of two pricing models – Time & Materials or Fixed Price. We decided to explain both of these models in this blog because choosing the right model is a crucial factor in the success of every web and mobile app project.
time and materials vs fixed price

| What elements influence the pricing model you choose?

Selecting the right pricing model is one of the most important elements of beginning a mobile or web app development project. The consequences of making the wrong choice can negatively influence your business. The pricing model chosen should fit with your company needs, requirements of the project, your preferred style of working, challenges that your app may face, your team and available resources. All of these elements should be discussed with whoever you are partnering with to develop your app.

Choosing the right partner for your project will help support choosing the right pricing model. Find a partner that is fully transparent about the work (process and tools), can clearly communicate as well as present direct pricing and experience with similar projects. If they’ve delivered successful apps in the past, you can be more confident that your project will be successful as well.

time and materials

| What does Time and Materials mean?

Time and materials is a pricing model preferred by many app development agencies. When using this model, the client is billed for actual work based on the agreed hourly rate from the agency, plus the costs of materials required for the project. To put it simply – you pay for what you get. It is considered the best model for an agile style development process and is effective for both sides – the client and the agency.

Advantages

Why is the Time and Materials model preferred? Below is an outline of the primary advantages over the Fixed Price model.

  • Flexibility – with the time and materials model you can change the scope of the project and even the overall project direction at any time. You are not forced to stick with the original ideas you had when beginning the project, which allows for easy pivoting of the whole application toward a new target. Flexibility is key in the app development process – any indicators that you didn’t plan for that puts your project at risk…change it!
  • Control – you are involved in the app development process, ensuring quality every step of the way. This means you control the review of development as code is being created. If you see in the beginning that the app development agency is not a reliable partner, you can easily change partners without waiting for the end of the development process.
  • Simplicity and security – you pay for what the agency has developed for you, not more and not less. Tight on budget this month? Reduce the number of hours and increase them next month.
  • Time is money – you save time from the very beginning of the project by allowing the team to get to work right away, The fixed price model typically goes through a negotiation process which is more time-consuming. Also, during the whole development process, you see how much time was spent on every single task within the project. As the project continues, you can make smarter choices knowing how long a particular application element may take to develop.

Disadvantages

  • Problematic budgeting – in some cases it is hard to predict the budget for the whole app using the time and materials model. The application development process is not static, it’s dynamic – creators constantly have new ideas and requirements. This factor can make your project time and money consuming. That said, you are the master and hold all the keys, so deciding what to develop now is still your choice.
  • Your involvement – in the time and materials model your role will be crucial to guide the developers on executing your vision. For you, keeping a close eye on the work means providing quick feedback and tracking the budget. The development agency will be showing the quality of the project and it’s up to you to make sure it is meeting your standards of approval.

When to use?

Using the Time and Materials model will be a better choice for longer and more complex projects of web or mobile apps. You should also choose it when the requirements of the project are dynamic and the project scope is unclear or the final vision is not yet outlined simply.

| What does Fixed Price mean?

This model is quite simple – at the beginning of the project you define the scope of work and you pay one price for all the work to be completed. It doesn’t matter how much time the application development agency will spend on your project – you still pay the original cost.

Advantages

  • Predictability – you know what you will pay for and you can be sure that you will not pay more than the agreed cost. Be aware – it can be a double-edged sword, the first calculation may be overpriced (the agency will finish the project in shorter than expected time but you will still pay the full price) or it may be under-priced (you will save cash as the agency will spend more time on your project potentially cutting corners to finish). Either way, you can end up with less desirable results (cost or quality).
  • Control over budget – you know how much it will cost you to build the application before the project begins. This presents a high chance that there will be no surprise costs to complete the scope as defined. You can plan out your billing cycle knowing all along how much you will need to be budgeted for each month.
  • Simplicity – the scope is defined from the very beginning. Typically there will be less involvement required and less opportunity to “fine-tune” what the development team has built. Each milestone will be laid out so you know what to expect as the project progresses which should speed development. Consider this a more hands-off approach.

Disadvantages

  • Lack of flexibility – both sides form an agreement from day one and both sides need to respect the boundaries of the project. This also means that the scope of the project is locked in, limiting the ability to change, remove or add a feature. Should you decide that your app doesn’t require a particular feature anymore? Too bad…you already paid for it.
  • Lower quality deliverable – once underway, if the development team projects that the project will take more time than expected, they may try to cut some corners and look for the shortest, cheapest way to deliver. Sometimes the development teams choices may influence the quality of the application.

When to use?

The Fixed Price model can be a good choice in a few scenarios, for example when you are confident your app requirements will not change during the process of development.

Another example could be that your vision of the product is crystal clear and you know exactly how to communicate it to the development agency. It is also a good choice when you have a limited or fixed budget and you know that you can sacrifice some features for receiving the lowest cost for project delivery.

It can also be useful when building MVPs (minimum viable product) and/or POCs (proof of concept) which ultimately will not represent the final product. What also works well is smaller projects that require only simple feature sets.

| Summary

Fixed price and time and materials are not the only two models that exist when developing applications with a partner firm, although they are the primary two. Some companies are using hybrid models, trying to connect the best possible elements from both models.

That said, we are sure that choosing the right model is one of the most important decisions to make early in the development process. There is no universal answer to the question of which model is better. Startups have different needs than a larger corporation and each company will determine what will work best based on their project parameters.

At AppTailors, we believe that time and materials provide the best working conditions for the client and the development team. We have developed a wide range of successful web and mobile applications using this model. Observing the results for the delivery of high-quality applications has proven this model is battle-tested. We will continue to recommend the use of the time and materials model for the future success of our clients!