In the growing market of software development by
outsource companies there’s a tough choice in picking the most proper pricing
model, considering all the factors of the case. Planning of costs in advance,
being less involved in product development, mitigation of risks – all these
factors are crucial in defining the suitable model. So let’s enlighten three
most popular ones: Time and Material, Fixed price and Dedicated team.
Time and Material
This model is more connected with real figures
because you pay for actual time and effort that was spent. Quite often client
wants to control or change some features at a certain stage, so you can adjust
workload of the team and resources and prioritize the scope of work needed. Such
pricing model is the best in providing flexibility because it helps to change
project specifications at any step of implementation. That’s why it is excellent
either for IoT, Game development and Artificial intelligence projects or for
any big project with unclear requirements.
low risk budget, that can be flexible in the process
step by step methodology, helping to avoid problems at earlier stages
time to have functioning product, according to the subtask structure
client’s control over any stage of a project, adding necessary features when
in final cost of a budget because of changeable requests of a client, costs of
risks are not included
clear time limit of a project
for more time and human resources, according to client involvement.
Fixed price mode.l
If you deal with small or medium scope projects
with clear requirement your answer is fixed price model. This model is also called
traditional or waterfall. Client negotiates time, specification and scope of
work and pays in advance according to outsource company estimation. Such model doesn’t
require client’s involvement but most probably you’ll need detailed technical
vendor’s vision or software requirements specification to estimate risks and
budged and timeframe before the project’s start
accuracy of estimation is very high (up to 90%)
demands are discussed with the team beforehand, so minor client supervision
should be defined precisely including approval criteria and schedule
signing a contract every change costs extra
before signing a contract involve lots of face-to-face meetings with project
and account managers and unit leads for more accurate estimation
period of a product comes as a final phase which can influence the end product.
Dedicated team model.
Dedicated team model is modification of Time and
Material model. It is also more suitable model for long-term projects with
unclear requirements. Client pays monthly salary of every team member and gets
experienced team and other required resources for a project. With the right of
total control and management of process, work plan and human resources. The
team works under a client’s supervision, shares client’s business values and
tries to achieve project goals as soon as possible.
is mostly predictable, despite of workload changes and requirements updates
team dedicates 100% of their time working on your product and making its’
development more productive
quality is increased because the team works together for a while
control over management, selection and motivation of dedicated team members
helps to provide better understanding of the end product
efficient task planning for all the team members in order not to waste money
harder for team members to develop their expertise outside the project area
should be motivated to invest lots of time into management, communication and
So which software development pricing model is
the best for your business?
In most cases a project can be split into
several parts or blocks. There you may test and apply several pricing models to
figure out which is best for your product. Also take your time to analyze all
the project requirements either by yourself or with a help of reliable vendor.
If you try to apply different approach to each project it might become fruitful
relationship for all the involved parties.