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How to Choose the Best Software Development Pricing Model for Your Project

Arateg is a custom software development company based in Minsk, Belarus. We take care of tech, so you can focus on core business.
・2 min read

Before creating a tailor-made technological solution, you need to not only hire a reliable IT service provider but also choose a pricing model. Simply put, a pricing model is a type of contract that defines the spread of activities, timeline, and the overall cost

Most importantly, it determines what the customer actually pays for: the number of hours spent, the end result delivered within a certain time frame, or the work scope.

Fixed Price, Time and Material, Mixed Mode, and Dedicated Team are the most popular payment agreements. As each of them suits different project types, it’s challenging to decide which one is the best option. But don’t worry, we’ll help you find a perfect approach for yours! In this article, we’ve compared the top 4 software development pricing models. Take a look!

1. Fixed Price

This contract specifies business and technical requirements, product release date, and the overall cost. Since the key priority is to meet these terms, it’s very important to prevent various issues - extra work, prolonged stage approval process, etc.—that may lead to delivery delays and budget overrun.

Therefore, correct estimation and task planning are critical elements of success. So, define the app/website goal, prepare a detailed technical specification, create mockups and wireframes.

As it’s difficult to do without specific background, consult IT experts: business analysts, project managers, engineers specializing in the necessary field (if you need, for instance, a blockchain solution for an insurance firm, turn to a custom blockchain development company that has already helped underwriters accomplish their business objectives).

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Choose a Fixed Price model when:

  1. You need to build a website or application within a certain budget and time period.

  2. The project is small or medium-sized: the implementation will take less than two months.

  3. There is a clear technical specification. The more details you provide — mockups, roadmap, functional and nonfunctional requirements, etc. — the better.

  4. You are not going to be involved in the process, checking each task, making suggestions, and approving each iteration. The priority is to completely delegate software-related activities to professionals and get results.

What do you pay for:the exact work specified in the contract between your business and an IT outsourcing company.

2. Time & Material

Time & Material model offers the highest level of flexibility. The spread of activities, approximate budget, and project duration are still estimated but can be changed if necessary. The key advantage of T&M is that it enables the customer to easily alter the requirements.

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Changes can be initiated for many reasons that involve:

A competitor launched a very similar mobile application, so some functions have become irrelevant.

You want to add a new feature to cover another business task. Say, you’re creating a CRM system providing a user base, contacts, and a lead management dashboard. Feeling that this functionality is insufficient to perform the necessary tasks, employees are asking you to integrate a calendar and push notifications.

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