Why Fixed Price Projects Die

18 June 2019 Writer: Lera Grechanik 1119 views

Even though some businesses today may still use the fixed price model, it simply does not fit within the ever-changing environment of the IT industry. This model is not flexible or dynamic and does not leave any room for creativity at all. That’s why we turned to Time & Material billing model which is without a doubt a clear winner.

Fixed price vs T&M: what’s the difference?

time and material vs fixed price

A Fixed Price model, as the name implies, means that the client pays a fixed price for the project. When working by this model, the development agency and the client discuss everything the project should have and create very detailed documented project requirements(which may take ages). Then the work goes by this scenario. Any changes or add-ons, in this case, mean additional negotiation about extra costs and working hours that often would lead to endless discussions and arguments and can even “freeze” the development process which would negatively affect all sides involved. By “go wrong” we mean the following situations:

  • market change,
  • new trends,
  • missing features,
  • issues with communication,
  • unclear (vague) requirements,
  • a different interpretation of requirements.

Though sounding non-efficient at all, this model can work for short-time projects with a limited budget and simple functionality.

However, if you are planning a long-time project and want to ensure its quality from the start, the T&M model is what you need. With this model, you “pay as you go”: meaning, you pay for the scope of work performed and the budget is flexible. You can apply any changes anytime you want and constantly adapt the project to your needs or the needs of your clients. Let’s take a closer look at the advantages of Time & Material model.

Product quality

Product quality

Since the T&M model does not limit you in product development, you can align it any way you want to. You can add or remove functions, play with design, and overall polish the product so it 100% appeals to the audience and performs seamlessly.

Fixed price does not allow it. Instead, the company will estimate the project and will do it correspondingly, without letting you interfere with the development process. In the end, you will be presented with the result and will be charged additionally in case you’d like any changes. And the statistics are that fixed price projects almost always need major changes that could be avoided if the client chose the T&M model.

Saving time and money

Saving time and money

Imagine that you work by a Fixed Price model and you need to add an extra feature. What you will have to do in this case is go through negotiation and documentation again from the start to form a new fixed price and get to work. Think how much time you will lose on that, not speaking about money.

In the case of T&M, you will get approximate pricing estimates from the startbut you will also get the information about the possible risks and the best ways to avoid them. In this manner, you will be able to fix the issues on the go and immediately adapt your budget to the scope of work.

As well, consider the fact that most development agencies charge fair hourly prices, so you will end up saving a bit of your money if you choose the Time & Material model.

Project control

Project control

You are a person who invests time and money in the project so it’s essential that you know what’s going on at any project stage.

With Fixed Price model, you give requirements but are not involved in the development process, meaning, you will not have an opportunity to monitor the progress or suggest anything. With T&M model, you can monitor every step of the project and always comment on how things should be done next.

Such mutual collaboration between a client and the development company leads to better results and higher product quality.

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Time & Materials and limited budget

time and materials contract pros and cons

It may happen that your budget is limited and you have concerns that it may not be enough for the Time & Material model because there are no precise estimates. So what do you do in this case?

Experienced software development companies will always discuss the budget and the required functionality before getting down to work or drawing any estimates. So after negotiating about the budget, you will have to list the essential features for your app to have.

The company will then prioritize the features and will start developing the app in accordance with this priority. In this way, you will receive an MVP - minimum viable product which is a 100% functional first project stage and has all the most needed features. By having MVP, you will be able to use the app and then add extra functionality on the go.


Time & Material model is great but one of the most important factors to keep in mind is open and honest communication between you and the development team. Always speak your mind, immediately notify the team about anything you don’t like, and listen to the opinion of the Project Manager and other team members.

By working together as a single team and sticking to the core functionality of the app, you will be able to build a beautiful and seamlessly working software product that will bring you expected results.

Areas of responsibility - brand and growth marketing. Strongly believes that software development is an art and marketing is not just about sales but about sharing your passion. Her educational background in the field of business and marketing allows her to create expert content and help others to grow and expand knowledge.

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