4 Reasons Why Fixed-Price Software Development Is Bad For Your Business?

There are two main pricing models and partnership agreements in software development outsourcing the fixed price and the time and materials model. The choice is not always obvious, and if you are in doubt about which model to choose for your software development project.

Fixed-price software development

Fixed price model

A fixed price software development contract is a type of collaboration between a customer and a supplier where everything is predetermined and determined all requirements, schedule, project scope, and costs are set without any further refinements or changes during the development process.

Short term projects

Fixed price software development projects are short, somewhere around 2 to 3 months in total. In this time frame, developers can create a demo for your future app, a basic MVP, or add new features to an already existing solution. If you’re just planning to build an app and want a solid demo or minimum value product sample for it, this might be the right pricing model for you.

Before you start

Before you approach your potential supplier and start negotiating the price of the project, you need to have three essential things a project specification with a detailed description of all requirements, an application mockup with UI and UX design ready for implementation, and acceptance criteria.

Advantages

Gradual progress

During the development process, there will be certain milestones that your software development partner will reach, and at each of these milestones, your partner will show you a new build with new features.

Predictability

When you partner with a professional development team, you can be sure that you will get exactly what you pay for. This collaboration model is quite predictable, and if you choose to develop software with a fixed price, you can be almost 100% sure of the end result.

Transparency

In addition, you have a clear deadline, which is quite useful for more effective business planning. Management is also much easier as you will be able to track the progress of the development during its milestones. Developers will need to report back to you regularly, which promotes transparent and open collaboration between you and your supplier.

Disadvantages

Long planning phase

In order to give you an accurate cost to deliver a project, the vendor needs to know everything about the project all the specs, requirements, UI and UX mockup and testing template all of these things are necessary to get an accurate number.

Lack of flexibility

Once all the requirements and specifications are set, you can’t really change anything the developers will go ahead with the plan and develop the exact product you paid for.

Fixed cost versus time and material model

The name of the model suggests that the price is defined by the time and material spent during the entire development process. While you can make estimates and work with your vendor to determine the approximate cost of software development outsourcing, the final number will be determined when the project is almost complete.

Managerial control

You won’t be able to directly interfere with development or make any real process changes. You can even participate directly in the development, add new people, make changes in the composition of the team and manage all the progress practically.

Flexibility

Basically, there is no such thing as agile software development on a fixed price contract, because implementing any changes is quite difficult. Allowing you to change project specifications on the go and adapt to sudden market changes that may affect your business.

Start speed

Planning and preparing such a project may even take more time than the development process itself. With a time and material model, you can start working on your project in a matter of weeks, and with a good development partner by your side, you’ll see tangible results within a month.

Conclusion

When comparing the cost-plus model and the fixed price, the conclusion is simple each model is suitable for different types of projects. Using a small project like adding a few new features to an existing application, fixed price would be the clear winner.