What is Fixed-Price Software Development?

Fixed-Price

We have worked with hundreds of clients, and the first questions nearly everyone asks us is, “how much will this project cost?”. It’s an excellent question. It’s rare to find someone who has unlimited funds to dedicate to any given project. And, the most easily understood pricing model is fixed-price.

The fixed-price price model is exactly what it sounds like. A client tells a development team exactly what they want. Then, the software firm or developer draws up a contract with a set price. When the software is completed, the client cuts a check and the software is handed over. Very cut and dry, right? The problem with this scenario is that it’s very rare.

Custom software development is full of surprises. Because of that, clients will likely have to reevaluate and renegotiate their contract many times throughout the process, raising the original price, while the product stays the same.

The Other Option

Fixed-price is the price model we use for everyday purchases – groceries, clothes, event tickets. But, building custom software isn’t like buying groceries. It’s more like building a custom home.

You will want to begin by hiring an architect to design the home for you. You can provide a budget up front, but it is highly unlikely that you’ll find a contractor who will promise your home for that budget. Instead, your contractor will likely give you a price range he or she believes your home will fall into. An experienced home builder will know from experience that it is rare a completed custom home looks exactly as described at the project start. It works that way because nobody really knows all the decisions that will need to be made along the way. And, as the homeowner begins to see the project grow, they will inevitably make changes according to how he or she plans to use the spaces being built. This type of pricing model is called time and materials.

Why is Time and Materials a Better Choice?

Every custom software project can fall victim to unexpected schedule and budget issues. When a client is given an estimate for a software project, they are getting an educated guess. And, for an estimate, that’s ok. But, it’s likely to change, rendering the fixed-price contract useless.

When a client decides to take the time and materials path to software development, they don’t need to hash out every detail of how an app will work ahead of time or risk having unmet requirements because, under a time and materials contract, the design is significantly more flexible. Ultimately the client decides when the project is complete. Learn more about “Time and Materials Vs. Fixed Fee”.

Whether you have a great idea for a new app, or your business is looking to upgrade from a legacy workflow system, don’t fall into the fixed-price trap. Being a part of your software project from beginning to end will put you in charge and you will undoubtedly end up having a better experience, with a better end product. If you’re looking to team up with a software development firm with over 25 years’ experience in working with clients on getting their software development projects off the ground, give us a shout! We’d love to hear from you.