This model is suitable when a buyer and seller enter a fixed-price contract by agreeing on the final cost of development, which is set by the contract both parties sign and agree to honor. The length of time that the fixed price lasts depends on the terms of the contract. Weighing the advantages and disadvantages of a fixed-price contract helps a small business decide whether to exercise the option.
Fixed Pricing Advantages
Fixed pricing is intended to attract more customers and clients because it offers them assurances.
Fixed pricing is also consistent, so customers get used to your pricing and you have less risk of offending them by fluctuating prices over time.
Detailed written price. You understand exactly how much and what you are paying for. The Pricing terms are documented, so no one can present you with an invoice for additional costs.
Strict terms of performance.
You know the precise date when specific functionality will be developed. Only an extraordinary force majeure may prevent the timely delivery of work.
Highly motivated team.
Since your employees get paid for the actual result rather than for hours spent in the office, they will do their best to implement a quality product within the time period allowed.
No need to manage the workflow.
When you decide on a fixed price model, outsourcing company executes project supervision for you. Your participation is kept to a minimum. Thus, you can be sure that your product is being implemented under the guidance of a professional leader.
Clear-cut requirements and goals.
You know exactly which feature will be implemented upon completion of a certain period. The employees perform only strictly defined tasks and are not allowed to depart from the terms of the contract unilaterally.
The lowest probability of incurring losses for the client is also among the advantages of fixed price contract. In contrast, the development team is likely to bear all costs, in the case, it cannot meet the specified requirements.
Simple tutorial to guide you through the outsourcing development process.
A good fit for small businesses. Projects of a short duration require special pricing and management models in order to establish the most efficient workflow in a limited time. Using a fixed price model in the construction of your product, you choose the most suitable option.
A lot of free time:).
So, you’ve explained to the developers what you need, signed an agreement, made an upfront payment… What’s next? Well, you can drink coffee, read your favorite book, sunbathe on the beach, or become engaged in other things – you are totally free. The work is being done for you without your participation.
Fixed Pricing Disadvantages
Overlong pre-production period.
If you want the develop processes to be fast and clear, you have to work hard in the preparatory phase of the project. Most of the time is to should be devoted to the discussion, documentation, and verification of all the details.
Low level of participation interest.
On the one hand – it is good that the workflow is being controlled by professional managers, on the other – you might want to become engaged in the process to a greater extent, however, a fixed price project model does not involve this. In any case, this does not mean that your opinion is going to be overridden.
Inflexible development process.
All the steps are strictly prescribed. The development team may alter the process only at the level of shifting the task priorities.
The scarcity of communication. Usually, the team gets in touch with the client once a day during the daily meetings. This does not mean that you are prohibited from caring about progress, however, frequent interaction with the developers is not expected in the fixed price business model.
One of the Fixed Price project risks is a chance to be overcharged if you give an unclear formulation of requirements. If for some reason you get misunderstood at the preparation stage and your instructions are documented incorrectly, you will have to correct this by inking an extra deal and thus pay additional costs.
Well, this was a theoretical information on managing a fixed price project. To start the practice, please contact our specialists. You will see how quickly and efficiently it is possible to embody your idea into a revenue generating product.