Fixed Cost Versus Time and Materials: What You Need To Know

Planning a new project: fixed cost vs time and materials

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Ah, project pricing.

No one likes to talk about money, but understanding how pricing is structured is absolutely crucial for effective website redesigns. There are a couple of ways website projects are priced—notably, fixed cost versus time and materials. Both have their own advantages and disadvantages, and I’ll break it down for you today to help you differentiate between the two.

Let’s get started!

Fixed Cost: The Basics

As the name implies, a fixed cost structure is one where the price is set in stone. The agency determines pricing based on the specific services and needs outlined in the client’s proposal, regardless of the time investment the agency might incurs. Usually, fixed cost contracts are milestone-based.

Managing Risk with Fixed Costs

It’s easier to mitigate risk when you know exactly what you are paying for. Because the agency works off what the client has provided in terms of scope, the client is guaranteed the cost won’t exceed what’s been laid out in the contract. It’s up to the agency, like WDG, to produce the deliverables requested by the client. By outlining the needs at the onset, it becomes easier for the agency and the client to manage expectations.

Limited Flexibility with Fixed Cost

Of course, with the promise of decreased risk also comes less flexibility. When the agency determines outright what services the contract will, and will not, cover, suggestions and alterations not covered in the original scope will require those lovely little change orders to come up with new pricing structures.

Who Should Use Fixed Cost?

The fixed cost model is best for clients who have a clear, concrete idea of what they expect from a website redesign. If you don’t know what you want, it’s hard for an agency to create a proper pricing structure. Understanding your business’s goals with help alleviate the risks. After all, it’s up to the agency to deliver what you are asking for.

Time & Material: The Basics

With time and materials, clients are billed for the hours spent on a particular project, not for the specific services that are outlined in fixed cost projects.

Higher Risk with Time & Material

As a client, you are paying for the changeability of the project. While the agency can estimate a dollar amount, clients should keep in mind that it could go 1 of 3 ways. First, the project could cost the estimated amount. Second, the project could cost less than the estimated amount. And third, the project could cost more than the estimated amount. Why is this? Because the client is paying for hours, not outcomes.

More Flexibility with Time & Material

Since you pay for hours, you have the ability to make as many changes and requests as you’d like—understanding that more changes equals more hours. Want to rethink this? Want to adjust that? You can request all these things without having to rehash the contract, making it a great option for projects with many stakeholders.

Who Should Use Time & Material?

Time and materials are best for clients who require the liberty to make changes to the project’s specifications as they see fit. Understanding of course that more changes might result in more billable hours. When given more freedom, the client doesn’t have to worry about revisiting contracts whenever they want to make a change.

Fixed Cost Versus Time and Materials: The Bottom Line

Like everything, there are definitely pros and cons to the whole fixed cost versus time and materials debate. The key here is understanding what your priorities are. Do you want to manage risks and have a clear sense of what you want? Fixed cost is for you! Do you want the flexibility to make changes as you go? Time and material is your perfect match.

Have more questions about fixed cost versus time and materials? Drop us a tweet and we’ll get back to you! (Or just contact us!)

Created by Zaff Studiofrom the Noun Project