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If you are a business owner who is looking to outsource your software development, then you have two pricing options to choose from. The first is called the ‘Time and Material’ model, and the second is the ‘Fixed Price’ model. While both of these pricing options come with their share of pros and cons, the T&M model is widely considered to be the best option out of the two. In the following lines, we’re going to take a closer look at both of these pricing models and how your business can benefit from them.

 

What is the Time and Materials Model?

Time and Materials, also known as ‘T&M,’ is considered to be the standard when it comes to crafting a contract for software development. When following the Time and Materials model, the person hiring the services only has to pay for the time that the team spends on developing the software or product. This also goes for the equipment and materials that they were using for the duration of the development process.

 

It is common for the Time and Materials model to be used when it is difficult to estimate the precise requirements of a software development project, especially when both the size and requirements are estimated to be dynamic.

 

When using the Time and Materials model, careful attention needs to be given to estimating the overall time necessary for the development of the software, along with its scope and the budget that you have put aside.

 

That being said, one of the advantages of using the Time and Materials model is that this method is still considered to be flexible and can be negotiated on a regular basis for the duration of the project. Those who use the Time and Materials model settle their payments within the previously agreed intervals; in other words, the payments can be made on a monthly basis. Due to its flexibility, the T&M model is in direct opposition with the next type of model, which is the Fixed Price contract.

 

What is the Fixed Price Model?

Under the Fixed Price model, the person will agree to make their payments in a lump sum for the project. This payment will be made regardless of whether or not it takes a few hours or multiple days for a team to complete the software development project. This will also include paying for the materials and any other equipment that was used throughout the duration of the software development project.

 

In the Fixed Price model, the product owner will be the one who develops the specifications of the project. This detailed outline of the development project’s requirements is what the development team uses to come up with both cost and duration estimates for the project. Under the Fixed Price model, both elements of the project (the cost and duration) are fixed. This means that the development team needs to commit to delivering the software development project within the budget and duration that has been laid out by the product owner.

 

The payment schedule under the Fixed Price model contains factors such as internal deadlines and milestones, which make up the project roadmap.

 

Time and Materials Advantages

There are many who prefer using the Time and Management model when it comes to software development. The following are some of the most sought after benefits of using the Time and Materials model.

 

Saves You Time During the Initial Estimation

 

One of the main benefits of using the Time and Materials model is that it enables the product owner to save time on the process by defining initial estimations for the software development project. Rather than having to waste time and energy on writing down detailed specifications on the product, one can get to work with the product a lot sooner, along with speeding up the time-to-market duration.

 

On the other hand, with the Fixed Cost model, you will be spending the majority of your time writing detailed specifications on the software development process, which can have a negative impact on the project’s outcome.

 

Flexible Project Scope

 

Under the Time and Materials model, you get greater flexibility when it comes to the overall scope of a software development project. This is regardless of whether you begin a project with or without a definitive project plan. The pricing model of the Time and Materials model also makes it easier for the project to progress smoothly without hitting any snags and allows you to respond quickly to any sudden changes in the market. You can’t expect much flexibility with the Fixed cost model, since, as the name implies, the cost and duration are fixed from the get-go.

 

Unmatched Transparency

 

Needless to say, the Time and Materials model offers an unmatched level of transparency since it provides the customer with the full cost as well as the progress of the project in real-time throughout the project’s lifecycle. Since a product owner will want to know what the dev team is up to, the T&M model allows one to get timesheets and invoices along with regular meetups where they can discuss about the progress of a software development project with the dev team.

 

Furthermore, a professional software development company will have no qualms when it comes to sharing the relevant documentation with the product owner.

 

 

Ending Note

Another reason why the Time and Materials model is considered to be the preferred choice for many businesses who are looking to hire software development services is mainly that under the fixed cost basis, the agency is incentivized to maximize their profit by keeping their efforts low, whereas, in the Time and Material Model, the agency is incentivized to do the job properly and not worry about profit.

 

This means a win-win situation for both the agency who is providing the software development service and the business owner who is looking to launch a fully-functional software or product.

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