Types of Pricing Models

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 model.

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.

Pros:

• negotiable low risk budget, that can be flexible in the process
• agile step by step methodology, helping to avoid problems at earlier stages
• shorter time to have functioning product, according to the subtask structure
• easy client’s control over any stage of a project, adding necessary features when required.

Cons:

• • difference in final cost of a budget because of changeable requests of a client, costs of risks are not included
  • no clear time limit of a project
  • demand for more time and human resources, according to client involvement.

Fixed price model.

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 full workload.

Pros:

• • • • fixed budged and timeframe before the project’s start
      • the accuracy of estimation is very high (up to 90%)
      • all demands are discussed with the team beforehand, so minor client supervision required.

Cons:

• • • • requirements should be defined precisely including approval criteria and schedule
      • after signing a contract every change costs extra
      • negotiation before signing a contract involve lots of face-to-face meetings with project and account managers and unit leads for more accurate estimation
      • testing 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.

Pros:

• • • • budget is mostly predictable, despite of workload changes and requirements updates
      • the team dedicates 100% of their time working on your product and making its’ development more productive
      • product quality is increased because the team works together for a while
      • total control over management, selection and motivation of dedicated team members helps to provide better understanding of the end product

Cons:

• • • requires efficient task planning for all the team members in order not to waste money
    • it’s harder for team members to develop their expertise outside the project area