Fixed price vs. Hourly rate: everything you should know about these pricing models

15 Aug 2019

Do you know the price of the web or mobile app you want to be developed? We suppose you have never found a precise answer to this question as prices depend on many different factors. However, any businessman wants to know what he pays for – and we are ready to explain two main software development pricing models today. Pricing models should always be situation-specific, so we choose the best approach for our creative and financial operations. And since clients have preferences, we are ready to quote for both.

Hourly rates ensure that a developer gets paid for all the time he or she spends working. As a rolling pricing method, any unexpected changes or additional work can be easily billed for without requoting anything. You can make as many changes as they want along the way, so there is a less up-front commitment to the final shape of the project.

However, their flexible nature can worry you if you are a budget-conscious client since it’s not clear how much the project will cost upon entering a contract. Hourly rates are ideal for huge projects and working with new developers since they provide a level of protection for both client and worker. You can’t be certain of the total work involved or the level of communication and involvement you desire if you’ve never worked with them, and you don’t want to fix a fee when you can’t be sure the project will be profitable. Always opt for hourly rates when working on non-standard, unstructured projects which haven’t been fully scoped by the client or require a lot of subjective back and forth. We usually use this pricing model for huge projects in our company. The way we deal with it is next: agile – scrum – 2 weeks sprint – 2 weeks payment. Practice shows that this pricing model is a great option for big projects.

Fixed rates are wonderfully simple – you don’t have to keep detailed records of everything a developer does just to get paid, and you know from the start how much you will pay for a piece of work. Unlike hourly rates, they also reward efficiency, since you pay for the creation of a product in of itself, rather than the time it takes to produce it. But there’s much less flexibility to adjust to changes in project direction than with hourly rates. And we should mention that fixed-price software is always a risky matter. You see, when you deal with strict time limits, something will definitely go wrong. To get things back into normal, all risks are included in app development cost to provide a financial “airbag”.

To understand the way the fixed price model works in our company just look at the scheme below.

Here is a comparative table of pricing models our company suggests. Compare it and, analyzing the project, choose the best one.

 

Hourly Rate

Fixed-Price

Size of Project

medium & large

small & medium

Requirements

evolving

defined

Flexibility

+

Your Participation

significant

little

Methodology

agile

waterfall


Customers should choose a pricing model based on the type of project they have. If they have a clear understanding of their project and a limited budget, then a fixed-price model should be used. Clients should avoid including lots of functionality in this case and instead focus only on core features. If the project is quite flexible and requirements change frequently, then the hourly rate model should be applied. 

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