When we have to choose something, especially services, primarily we pay attention to the price since everything depends on it, including our budget, how we allocate it, and quality of the work. Similarly, in business it’s important to choose the right contract model that suits your project.
There are two common project pricing models: fixed price and time&material contracts. Both of them have their own advantages and disadvantages that mostly depend on the consumer’s priorities, because the former offers predictability and certainty, and the latter gives the client flexibility and adjustability. Then how to choose the one that suits your project and which is better?
Benefits and Risks of Fixed Price and Time&Material
- Price predictability
One of the benefits of fixed price is that the total project cost is agreed upon upfront, which makes financial planning easier and reduces short-term budget uncertainty. In contrast, the final cost in time&material depends on ongoing project management and requires active client involvement in prioritization and monitoring.
- Scope and deliverables
Fixed price contracts define all requirements, deadlines, and outcomes before development starts, creating a clear contractual framework and helps align expectations at the beginning of the project. But time&material relies heavily on strong planning, communication, and experienced product ownership.
- Flexibility
In contrast with fixed price, time&material has an ability to absorb change without friction. As business priorities, user feedback, or market conditions evolve, the scope can be adjusted without renegotiating the contract. For the fixed price, however, any changes might be expensive or not possible at all.
- Quality and technical decisions
Unlike fixed price which have the risk of lacking quality and better technical decisions because of need to follow contract and budget, time&material allows developers to have more room to propose better architectural solutions and invest in long-term maintainability.
How to choose the right model?
Since the efficiency of a contract depends on the project, it is better to understand what type of project you have. For example, fixed price works well when requirements are stable and well-documented, such as MVPs with a predefined feature set, landing pages, system migrations, and etc. As a result, it’s justified when scope stability is high, risks are low, and predictability is the top priority. For complex, long-term, or evolving products, a more flexible model is time&material, which is often more cost-effective and strategically sound. It allows continuous refinement, faster feedback loops, and better alignment between business goals and technical decisions.
However, software development is rarely static and assuming that requirements can be fully defined upfront is tricky. In reality, it’s possible only if the client has strong domain expertise, stable goals, and sufficient time for detailed specification before development begins.
Conclusion
The best pricing model is not the cheapest or the safest in theory, but the one that matches the project’s uncertainty, maturity, and long-term value. That’s why it is better to choose the contract based on your project and to decide what are your priorities.
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