Fixed Price vs. Time and Material: Which Pricing Model to Choose?

You need to take care of so many variables when you are starting with a new project. These variables include “which partner to work with”, “which product”, “the timeline”, among others. Choosing these variables carefully is of paramount importance as these elements will have a great impact on the success of your project. 

As a supplier who has been a former customer, there is one decisive factor that I have valued more than any other factor. That factor is: “Choosing the pricing model for my project”. Choosing the correct pricing model overrides any other variable. That’s because the pricing contract should suit your company’s operating technique, contracted needs and aspirations, and the overall expenses yielded by your vendor. In fact, both you and your vendor want the perfect pricing model for the project that will satiate each other’s needs. Hence, a careful selection of pricing models is very important. 

There are certain features that you need to take into consideration before selecting one of these models. Let’s take a look at some of the advantages of these models to understand which one suits your needs and aspirations perfectly. 


Fixed Price Models

The fixed price model is exactly what the term implies. From budget to the project scope to timeframe, everything about this model is “fixed”. The deadlines and requirements are pre-determined and the agreed-upon budget is unchangeable. When it comes to fixed-price models, there is more transparency and management is easier. However, you need to plan ahead of time if you want to implement this type of model. 

The project may be compromised in regards to the quality because of the limited features. However, you can expect to avail your project within the predetermined time and it won’t burn a hole in your pocket either. Fixed Price models are best suited for smaller projects with a fixed deadline. Let’s say that you want to develop a simple prototype or a solution. In this scenario, a fixed pricing model is the perfect option as it will help you stay on track.

But the limited aspects of these types of models can also give you a lot of trouble. There are a lot of constraints and these models lack flexibility. Mix-ups in your projects can be very dangerous and lead to unavoidable budget overheads.

So do you have a big project that you need to see through to its end? Read on to know about the Time and Materials model to get more clarity. 


Time and Materials

Unlike Fixed Price Models, Time and Materials models do not come with any presupposed deadlines or pricing. These types of models are very dynamic in nature. You can exercise much more freedom and flexibility when it comes to the project. Payment is dependent on the number of hours you are putting in. 

More often than not, customers lack an understanding of what they actually want from their projects. Consequently, the project needs to be much more flexible in nature to accommodate the required changes whenever and wherever. This is why a lot of people tend to go for these types of models. The financial aspect of these models may be an issue but no other model can beat it when it comes to flexibility or scope of improvement. 

You must keep in mind that these kinds of projects need to be planned out thoroughly. Owing to the sheer amount of freedom when it comes down to making changes, the project developer might drag the whole ordeal by introducing new changes every day. Another disadvantage of using the Time and Materials model is the fact that it lacks profound involvement or supervision. Without proper involvement, delivering a project with the approved changes within the specified time might prove to be a hassle.


Choosing Fixed Price or Time and Materials 

The decision of choosing the correct pricing model is shouldered by the client. None of these two models enjoy any kind of fundamental advantage over one another. You should, therefore, choose the model that is well-suited to your needs. 

If the client wants to go for the model that offers a bunch of improvement opportunities, then they should definitely try out the Time and Material model. However, if they want the project to be completed well within a certain timeline and predetermined pricing, then the Fixed Price Model is the best choice. 

If you want to know more about these models and their features, contact us at Target Integration and let us take you through the whole process.  



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