We will explain how these agreements differ from one another and what projects they are suitable for.
Andrey Stepanov
CTO at ByteMinds
Fixed Price is an agreement where the volume and content of work on the project (technical specifications), implementation time and cost are fixed.
Features of Fixed Price
- Detailed technical specifications for development. Requirements for creating technical specifications must be thorough and exhaustive. Any changes to the technical specifications (such as adding new functionality or choosing a different technology) will have implications on deadlines and costs.
- Additional charges for anything beyond the agreed specifications. If, while working on a Fixed Price project, the client discovers they require additional features or changes, a new agreement with its own payment conditions is necessary.
- Higher cost per hour. The contractor guarantees that the project will be completed on time and without additional payments. Thus, the Fixed Price rates cover all potential risks, from both the customer's and the contractor's sides, as well as the involvement of project managers and other specialists.
Which projects is Fixed Price suitable for?
Fixed Price is ideal for projects with clear requirements, a limited budget, and specific deadlines, such as:
- Websites on a smaller scale - corporate, landing pages, one-page websites;
- Distinct segments of website work - the development of specific tools (for example, calculators), or targeted automation of business processes;
- MVPs (minimum viable product) - the first version of an IT product that has a minimum set of functions sufficient to meet user needs.
We use the Fixed Price model to include extra features in a product for an existing client, perform system audits, and carry out analytics before starting a project.
We understand that changes during the development process can be critical to the success of a project, and Fixed Price limits them. Thus, for individual development projects, we adopt the Wagile approach within this model. This allows us to keep within the Fixed Price boundaries while incorporating flexibility to achieve more effective outcomes.
Time & Materials is an agreement that sets the developer's rate per hour. The customer pays for the time spent solving their problem and for the materials that were used during the work.
Features of Time & Materials
- Flexibility. When working with a T&M contractor, the customer is free to modify or adjust the project's features and functions at any time without the need for additional contracts and agreements. It's important to remember that any new task represents the development team's time, for which payment will be required.
- Transparent process. Working according to T&M, developers always keep the client informed of the current state of the project: regular meetings with the customer, presentations and constant time logging in time trackers. On T&M projects, we conduct a demo for clients every couple of weeks and provide a monthly report detailing the completed work and the total hours spent on it.
Which projects is Time & Materials suitable for?
T&M is best suited for large projects that require flexibility and do not have detailed technical specifications and a list of functional requirements.
- Startups involving innovative services and tools;
- Highly loaded websites with a large and ever-expanding list of functional requirements;
- Development of tools for business optimization and logic - personal accounts, intranet portals.
Retainer is an agreement that specifies the project team, the time it will spend on work monthly, and the cost of it.
Retainer Features
- Stability. The same people work for the client, the same number of hours per month for a fixed amount. None of these parameters will change throughout the Retainer agreement.
- Flexibility. As in the case of T&M, the customer is free to change requirements, set tasks and add functionality. It is only important to remember that the team's time for implementation is limited by the contract.
- Unspent hours will expire. If the client pays for 30 hours a month, and the team completes the assigned tasks in 20, the difference will expire and will not be carried over to the next month.
Which projects Retainer is suitable for?
Retainer is suitable when the customer has a large-scale project that needs to be developed, but does not have its own IT department or it needs to be reinforced with external personnel, or hire a ready-made development team:
- Startups and companies with an idea, but without IT competence;
- Ongoing development for large services post-release;
- Projects requiring continuous support.
Product and custom development requires flexibility, so sometimes it is useful to move from one model to another.
Typically, we initiate complex projects with an analytics phase under Fixed Price. After the analysis, we assess the scope of design and development work and suggest the client switch to T&M.
T&M is good here because when developing complex IT products, it is impossible to accurately estimate labor costs. Changes in requirements will inevitably appear, no matter how well you think them through. The scope of work will expand. T&M allows a flexible approach to changes within the project, unlike Fixed Price.
The contractor, working under Fixed Price, is very careful about the scope of work for which he has signed up, and any changes must go through a lengthy process of approvals and discussions. This process wastes time and diverts focus from the most important aspect - achieving business results.
A lot depends on choosing the right agreement - the timing and cost of the project, and its relevance upon completion of the work. Therefore, before offering the customer to work under one of the agreements, we dive into their business processes, study and understand the task, and collect all the requirements. Only after this can you understand what is better - Fixed Price, T&M or Retainer.
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