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Fixed Price vs Dedicated Team: Business Point of View

Fixed Price vs Dedicated Team: Business Point of View

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Thunderrise

When giving your project to outsourcing to a development team, the first question is “what model of cooperation should I choose?”. In Thunderrise, we are developing a particular approach to every customer and his project specificity. Accordingly, next models of cooperation are formed:

  • Fixed price
  • Hourly rate
  • Dedicated team (monthly rate)

As the matter of principle, every approach occasionally takes place, has its own advantages based on the situation. However, there are also disadvantages you should avoid. In order to help you make the right choice, we have prepared a guidance on choosing the model of cooperation which would be optimal for you.

Fixed price

Turning to a mobile application or Software developer, most customers have already known what budget they have at their disposal. This way it becomes a fixed price which they can offer a development company.

As its name suggests, the fixed price is based on predetermined budget and schedule. It means that you and the development company agree to the fixed price which you will have to pay at the end of the project, regardless of how much time was spent and how many people were involved. This approach offers the following benefits:

  • A transparent and predictable developing process requiring minimum supervision from you.
  • Regardless of the circumstances, the project with fixed price will be completed on the basis of the budget stipulated in advance.
  • Risk level reduces as the developers team takes full responsibility for timely provision of final product. That is, during the contract conclusion you are stipulating the terms for which the project will be done, or some intermediate dates when there will be a report on the sprints. And, of course, define a deadline.

Such an approach seems to be honest and fair: you don’t have to think about overspending and the development company takes full responsibility. In case of force majeure situations you have no need to worry once more, if you have a contract printed out, respectively.

On the other hand, it is difficult to make exact time and cost estimations or to make up a separate plan on the early developing stages. Accordingly, fixed rate also has its disadvantages:

  • As fixed priced projects often need to be planned carefully, it could take to 30% of developing time. Consequently, you will have to spend a third of your budget before the team would have written at least one code line.
  • To be honest, quality often suffers from the fact that the team tries to fulfill everything in a hurry until the deadline comes. Every new trouble could entail product quality decline.
  • Fixed price often leads to the lack of flexibility. Any deviation from the original plan entails extra estimations and, consequently, the necessary budget increase.

Taking into account the above mentioned advantages and disadvantages projects with fixed price best suit to the projects with a clearly defined scope and requirements. Consequently, this approach is good only for small projects with a certain functional limitation and an obvious result, and also short cooperation and exact terms.

Hourly rate

Unlike fixed price, hourly rate offers flexibility both in budget and in project requirements. In this case, the full budget of the project and its scope leave unknown till it ends. It depends only on time and efforts given to its development.

Even though planning and specification have taken place yet, hourly rate model lets change scope and integrations “under-way”. This way the final budget can differ from the original one.

Hourly rate model gives flexibility in requirements, scope and functionality.

This approach owns a model “post-paid service”. It means that you will have to pay monthly (or weekly) when a particular part of work is fulfilled. That is, you can fracture the whole project, so called sprints.

You have a total control over the budget and terms so you have a possibility to change the scope and priorities to keep on schedule.

The hourly rate work approach is proved to be the most acceptable in terms of effective time and money charge. But it has its disadvantages too:

  • The final budget of the project is not known till the end. Your requirements can be changed at any stage so the price and necessary time could vary.
  • Because of its flexibility, this model of cooperation is oriented on small integrations so the final terms leave unknown too. Of course, everything mostly depends on your cooperation with the development company.
  • Such projects need a constant oversight and your directly participation. A constant monitoring of changing the requirements and priorities is important.

Anyway, this model is used in medium-sized and big projects with constantly changing requirements, long regulation and evolving development of the product. It is also the best solution for the product improvement and technical support.

Dedicated team

A dedicated team is a unique model of cooperation which contains some characteristics of fixed price and hourly rate. You are provided with a specially selected team who are assigned to your project on a long-term basis.

The main goal of this model is to compensate the lack of skills and experience within your team. You can personally manage this team or work with project manager who will coordinate it.

This approach implies a very simple model of payment. You pay fixed money monthly that depends on the team size. This payment covers workers’ salaries and service cost including unproductive expenditures.

These obvious advantages can be distinguished, as discussed above:

  • A predictable and transparent budget
  • A flexible project size
  • A full production control
  • A team has an exact understanding of project and your specifics of the task
  • A team is fully focused on your project

Dedicated team also has its disadvantages:

  • It is inefficient for short-term cooperation. If your project takes only a month or two, hiring a separate team can be resource-intensive.
  • To find and attract some specialists with subtle skills or specific experience will take some time (on average about two weeks)
  • Project management also requires time and efforts if you are going to do it yourself.

As well as an hourly rate, a dedicated team works best in long-term relationships with non-specified requirements. However to achieve optimal efficiency it is necessary to make sure that you need scope of work enough to make all of the team members busy for several months.

Let’s review

As you can see, each of the described approaches has its pros and cons. Choosing of best cooperation model depends entirely on your project specificity.

If your project is long-team and requires closer supervision of a professional project-manager, we would recommend you a dedicated team.

An hourly rate is good both in medium-sized and big projects providing the total control over the process and the budget.

A fixed price is an excellent first step for building a reliable business partnership with a company-developer but this model can turn to be inefficient when a long-team developing a project.

If you have some difficulties in choosing a model of cooperation for your next project, contact us and you will get a free consultation. We are always ready to embody your ideas into reality.