Do you want to get your software development outsourced to a company or third-party developing team? Then you must have a significant amount of money in hand. At the same time, a company or a team signing a contract with you will finalize the agreement according to the software pricing models they are using.
Having enough knowledge of these pricing models and the budget offered by the client will lead you to end up with a great decision. There are various software pricing models in the industry like Time and Material, Fixed Price, Mixed Pricing, and Dedicated Team Pricing.
Keep reading to learn which pricing model is used in which condition, along with its pros and cons.
4 Software Pricing Models:
Time And Material
If you want to work with your development team with maximum flexibility, then, the Time and Material model is the one that you should be using. You can make changes according to the hours you have spent working. Can make changes to the finalized budget of the project according to the resources or material you have utilized. The time and material pricing model add an adequate amount of responsibility to the client, as he is the one who is bearing the risk factor.
While having a stronger bond with the developers or the team will help you stay connected about the updates related to the adding or removing of the features.
Following are the pros and cons of the Time and Material Pricing Model:
- Can Maintain the Budget: The client can adjust the current set budget by adding or deleting some of the functionalities.
- Agile Methodology: This helps to divide the large project into small tasks with continuous assessments, evaluations, and testing.
- No arrangement costs: Everything is discussed during the development process, ultimately resulting in the cutting of the cost. Which can be used for making arrangements for the meetings or follow-ups.
- Uncertain Deadlines: As the final date for deploying the product is not known therefore leading to having less knowledge of the development process.
- Budget Uncertainty Prevails: The client faces uncertainty about the final price he would pay. With the addition of the module, usage of resources will make increments in the predefined budget.
- Supervising the development process takes a lot of time: An adequate amount of time will be needed to monitor the development process and the client will be bearing this time consumption alone.
When do Esketchers Suggest Using Time and Material Model?
Esketchers uses the time and material model when a client needs a certain amount of developers for his/her project. This method is also in the activation phase when a certain amount of time is spent while delivering the desired product. We at Esketchers believe that it’s a direct proportion between the final budget and the time and labor we have utilized.
Following are the quick points that you should also keep in mind while opting for Time and Material model:
- Client wants supervision and Involvement.
- The scope is not clear or exactly defined by the client.
- When the client wants you to accept changes during the development phase.
Fixed Price Model:
As the name suggests, the fixed amount is decided at the start and it will be paid after the completion of the work assigned. However, it doesn’t mean that you will develop large applications on small budgets.
The Fixed Price model allows flexibility to both the developers and client sides. The final amount will be decided after carefully analyzing the project scope. Mostly small scoped projects or projects with minimum features are catered to under this model.
Using this model makes the requirement process a bit longer compared to the Time and Material model. As everything has to be decided at the start and both the parties have to make the final agreement. In case, the client wants to add any other feature, the developer can ask for an extra amount as well. This scenario will lead to signing a fresh agreement as well.
Summing up, the Fixed price model is all about time and budget proportionality. They are directly proportional to each other.
- Finalized Budget and Time: As described earlier time and budget are already decided. Therefore both parties know when to complete the work and pay the decided amount.
- Great Coordination: There is a project manager to supervises the whole process, which not only builds a great communication system but also helps to gain the trust of the client as well.
- The minimal amount of risk for payments: The client or customer has the advantage of paying the final amount after reviewing the final product and making sure that all the requirements are implemented.
- Delay in Product Release: Whenever a software developer provides some feedback like new features, modification of the scope will become obligatory. Consequently, re-documentation is required to add new terms and pointers. It will increase the time to market the product. Moreover, it will lead to project delays and ultimately time and budget.
- Compromise Over Quality: In crisis times, software development teams just focus on project delivery. To meet project deadlines and workload they compromise on product quality like testing and debugging code. Hence, the end product will suffer.
- Restricted Creativity: Whenever a real-world problem comes into the market, there are chances developers often find new features that add value to the whole project. Hence, it results in delays and disturbing time and money. In the fixed-price model, there are few chances to get new ideation and creativity in the piece of software.
- Long duration preparations: Both parties have to decide everything at the start and sign NDA (Non-Disclosure Agreement) which ultimately results in lengthening the preparation time.
- Client control is minimal: Everything is controlled by the project supervisor or manager therefore clients do not have strong control over managing things. He/she can only address the changes or requirements.
- Communication gap: The model doesn’t support communication among the developers and the client on a frequent basis.
When do Esketchers use the Fixed Price Model?
Esketchers uses the Fixed price model whenever the client asks for small website development (more specifically any small scoped WordPress website). The budget is finalized after carefully analyzing the features that need to be developed. The requirements of the client are clear and there is no ambiguity or change in requirements expected afterward. The Fixed Price model is normally well suited for small MVPs.
Below is the checklist that you should keep in mind before choosing the fixed price model:
- The client is having a fixed budget.
- The client is asking for a clearly scoped project along with a fixed timeline.
- Last but not the least, when requirements are crystal clear.
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Dedicated Team Pricing Model:
Sometimes you need a whole team of professionals for your long-term projects and want to hire a team for that. Then Team pricing model is used and for implementing this model you need an individual to be good enough at administration and managing the project or you can hire a manager or team lead as well and pay for that.
The model itself gives authority to the client for selecting the team, increasing or decreasing the members, and dividing the workload among the team members (if you choose to manage your project yourself, otherwise you can hire a project manager as well). It is somehow similar to building your own team in an office. However, the only difference is that everyone is working remotely for you while making you able to benefit from their services.
The team pricing model involves monthly payments approved and finalized by the client.
- Greater Control: Everything is controlled by the client-side. From hiring the team to assigning the tasks to make things flow smoothly to achieve the deadlines.
- No Additional Payments: Every individual is hired against a specific amount per month. Therefore no extra payments would be made.
- Direct Communication with the team members: As you are the manager of the whole team, you will be having direct communication with every individual on board. Hence no chance of building a communication gap.
- Lots of responsibility at the customer’s end: As you are responsible for managing everything, therefore it puts a lot more responsibility on you. Along with this, you also had to spend an adequate amount of time to make things happen fine.
- Can not predict the end cost: Final cost of the project can not be calculated at the start of the development process. Because of that, you had to know about every developer or team member’s work hours and rate.
To select the dedicated team pricing model, make sure to keep in mind the following points:
- The client is going to manage everything on his own.
- He/She needs control over the product development process.
- The client needs help in every phase of the product development. From initial stage to deployment to testing to maintenance.
Remember: The practical implementation of the dedicated team pricing model can be seen in outsourcing the software development. As it involves clients management along with hiring a remote team on a monthly basis.
Mixed Pricing Model:
You might understand it easily by its name, that it is the combination of two pricing models. But the question is which of the two software pricing models? So, a mixed model is achieved by combining the time and material model with the fixed price model.
This hybrid or mixed model is used when the customer has defined a specific time frame for the final release but the requirements for the project are unclear or the scope is not defined.
In these types of situations, the mixing of these two models helps the developers to accept the changes and fix the budget issues accordingly.
Possibly Product Launch Delay: One of the biggest disadvantages of using the mixed pricing model is that it continuously aids in delaying the actual product to get deployed or launched in the market. This happens due to continuous input and scope redefinitions, which ultimately take an adequate amount to get fulfilled. Hence the final product could not be completed on time.
When to Use The Mixed Pricing Model?
These are the situations or points which you should keep in mind while opting for the Mixed software pricing model:
- A medium-length project with a small time frame of completion. Typically that can be completed within 2-3 months.
- You have the time frame for delivering the actual product but no clear requirements in hand.
- You want some control in the development cycle. This means that in situations where you can add valuable feedback and suggestions for on-time project completion.
- For extraordinary results/output while working with strict deadlines.
In short, the industry uses multiple software pricing models however, it completely depends on choosing the one that suits you the best. Every project has its own requirements and for every project, there is a specific pricing model.
You can also mix two of the software pricing models, the fixed price and the time and material model for better implementation of the project. This helps to avoid many of the risks and ambiguities encountered during the development phase.
Esketchers mostly use the time & material pricing model and the fixed pricing model. However, the dedicated team model is only used when a client needs additional services along with the development of a long-term project.
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