There is a lot of contract types, but in developers world, two of them are very popular – the one called Time & Materials and the other Fixed Price. Which one of them is the best way to work with a remote software house? This has been always a mystery and that question seems to be older than the first computer, so as TheMasters.io we've decided to finally give you the answer.
Time & Materials
In this model, pricing is based on the time and materials spent on the project. It’s generally used in projects where it’s hard to estimate the size of the whole project or it’s very likely that project will change many times during development.
Fixed price is the opposition of Time & Materials contract type – customer agrees to pay a specified amount of money and it doesn’t matter how much time and materials software house will spend on the project.
To be honest – both of this models have their strengths and weaknesses, but in our opinion Time & Materials is much better. Why?
#1 Planning phase
If you have a product in early development, it’s very hard to specify how long it will take to finish it. A lot of projects are making pivots during growing process and in the end there are totally different than in the beginning. With the Time & Materials contract type, it’s easier to make shorter plans (for example with SCRUM method) and modify them during the time of implementation, while in fixed price you are not able to make big pivots without modifying the agreement for development. Your software house agreed to make it directly with the contract. Any change can force you to make another contract (with a higher price), or make the whole process much longer.
#2 Pricing phase
In reference to our historical data and projects completed in Fixed Price , each fixed price project in that model could have been 15% cheaper in Time & Materials model.
#3 Development phase
In Fixed Price, a software house agreed to make a project in the previously estimated time and with one final price. But there is also a chance that your project will be underestimated. You (or you developer) have two ways to handle with such challenge: either to change the agreement or to develop software within the pre-fixed price at all costs. In this second way, there is no doubt that it will have an influence on the software (low) quality. In Time & Materials both of you are satisfied because you know how much more money it will take to finish your project and your software house won’t lose any money on the project.
So why Time & Materials?
In this model quality is a static variable.
You can watch each step of the project, and for sure it will finish with much better product in the end. The cost is flexible, but it’s easy for you to manage it – for example, you can stop the whole project for some time or prioritize tasks. You can also modify your project many times in the development phase and you don’t have to worry about cost or quality deterioration. It’s very easy to set an estimated price for each milestone in your project. Therefore it’s just more safe, comfortable and fair for all sides of a software development project. Time & Materials model is a one of the most desired solutions in business - the win-win solution.