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A fixed-cost model stands for a type of contract in which both sides, a client and a vendor, agree on the scope of work, the deadlines, and the amount of money needed for the project implementation before the process of development starts.
A fixed-cost contract can be paid one time or in several payments during a pre-agreed time frame. Even though the scope of work is fixed, there’s a decent chance that you might need to implement some additional features along the way. This may result in shifting the deadlines and increasing the costs.
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A time-and-material contract, as opposed to a fixed-cost one, offers more flexibility in terms of development time frames and budget required. Within this billing model, a client pays for the actual scope of work that is done by a service vendor. The price is formed from the amount of time a team of developers has spent on a particular project and the costs of materials used if there are. The hourly labor rates are agreed upon by a client and a contractor beforehand. As for the payment intervals, they are also flexible and negotiated in advance.
Paying for software development isn’t the same as buying products in a grocery shop. A project tends to change and grow which often requires more time and expenses. That’s why most would agree that the time-and-material model is better compared to the fixed-cost model.
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There is no perfect solution. Both pricing formulas have their benefits and drawbacks. Let’s have a closer look at them.
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Pros
Cons
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What Type of?Projects Will Benefit From The Time-and-Materials Model?
?? Large-scale projects
?? Complex projects
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Pros
Cons
What Type Of Projects Will Benefit From The Fixed-Cost Model?
?? Small projects that have just a few basic features and require little time for their implementation
?? MVPs (minimum viable products)
?? Projects that require tight deadlines?
?? Projects with a set of predetermined features