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Fixed price contract: pros and cons

07.11.2017
Fixed price contract: pros and cons
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If you have never worked with a web development company, but are thinking of, then it’ll be interesting and useful to find out more about this. We continue giving you insights into how we manage web development projects. As every client is always concerned about their budget as well as time that are going to be spent, why we decided to explain more about possible pricing options that we use.

There are three main pricing models:

  • fixed price
  • time and material
  • dedicated team

First things first. In this blog post we’ll completely focus on the first type — a fixed price model. This article will help you evaluate the pros and cons and decide whether a fixed price contract is your fit or not and how you’ll benefit when choosing it.

The advantages of a fixed price model

It’s easier to estimate as accurately as possible

Estimation is aimed to forecast the amount of time and money that are to be spent according to the amount of project requirements. In a fixed price contract, unlike the others, all requirements are strictly defined. This feature makes it easier to estimate as accurately as possible and then meet this estimates.

In other models (time & material and dedicated team) it is expected that during the work there will be additional requests from the customer, programmers’ suggestions, etc., which is difficult to predict and take into account in advance. That’s why estimation of web projects is challenging, but not in case of fixed price model.

There is no financial risk for you as a client to go over budget

Fixed price model is named this way because the price written in the contract is fixed. You will know exactly how much your web project costs and be sure that no additional expenses will be charged.

You have a lot of free time while your project is developed

After agreeing on the detailed requirements and signing a fixed price contract, all you need to do is just passively wait until a web development team does the work for you without you. This pricing model, unlike others, don’t require client’s participation and control during every stage of the process.

So it’s an opportunity for you to spend this time on your own. You can focus on your company issues or simply take a vacation and go to a seaside while your web project is under the professional guidance.

The disadvantages of a fixed price model

All needed requirements are not always fully predicted

You have some vision of how a final result should be and describe your needs in technical specification. However, empirical experience is more useful than a theory. Nice ideas for improvement may evolve during the practical part of web development process. In such cases it’s hard to add any amendments to a fixed price contract. Change request and reestimation are needed. Unlike other flexible pricing models, fixed price is not designed for changes.

Fixed price model doesn't fit all web projects

If your project is small and simple, then a fixed price model would be a nice fit. However, it can’t satisfy the needs of large scale projects that require building complicated functionality and long terms of implementation, for example, creating a social network or an e-commerce website.

Conclusion

For sure, each pricing model has both pros and cons. To get maximum benefits when choosing a fixed price model it’s important that it fits your project size and complexity.

A fixed price model is usually chosen by public and not-for-profit organizations for small and medium size projects. Strictly defined requirements and clear acceptance criteria in a fixed price model allows you to count on the fixed budget and fixed deadline time and plan your company activity accordingly with minimum risks for surprises.

If a fixed price model is appropriate for your web project, please contact our specialists who gladly implement any of your ideas.

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