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january, 2025

Fixed Price vs
Time & Material

How to Make the Right Choice?
What’s the first question that comes to mind when planning the development of any IT product? Of course, it’s the cost. Wouldn’t it be great to walk into an IT company and get a clear answer like, “It’ll cost $50,000 to develop a mobile app,” just like when you buy bread or milk? There’s a product, and there’s a price. But IT doesn’t work like that. Everything depends on the complexity, functionality, goals, and objectives of your project.
So, how is the cost of IT products determined? There are two main cooperation models: Fixed Price (a fixed fee) and Time & Material (hourly billing). In this article, we’ll explain the differences and help you decide which model is best for your project.

Fixed Price

As the name suggests, this model involves a fixed cost. However, unlike shopping for groceries, you can’t set a universal price for every mobile app or software. The final cost depends on your specific needs and required functionality. Before agreeing on the total cost, you’ll need a detailed technical specification (TS) with a comprehensive description of your IT product.

  • Advantages:

    • Predictability: You know exactly how much you’ll spend.
    • Clarity: A pre-approved plan ensures there’s no deviation.

  • Limitations:

    • Costly changes: If you forgot to include an essential feature or decide to redesign something, additional work will cost extra. Changes in Fixed Price contracts are expensive because they fall outside the original agreement.
    • Slower development: The team might prioritize staying within budget, which sometimes leads to compromises in quality.

Time & Material

The Time & Material model is based on paying for the hours the team spends on your project. It allows you to make changes during development, add new features, remove unnecessary ones, and experiment.

  • Advantages:

    • Flexibility: Priorities shifted? The team adapts quickly.
    • Faster start: No need to spend months preparing a detailed TS — you can begin “tomorrow.” Work is divided into stages and progresses in sprints.
    • Transparency: You see how time and money are spent and can adjust the process if needed.

  • Limitations:

    • Potential budget increase: The final cost depends on the actual time spent.
    • Requires involvement: You need to be engaged in the process.
When does it work?
  • The project is complex and large-scale, like an enterprise management system.
  • You’re launching a startup and need to test ideas on the go.
  • You don’t have a clear TS but know how the product should function.
Fixed Price or Time & Material: How to Choose?
To make the right choice, ask yourself three key questions:
  • 1
    Do you have a detailed TS?
    If yes, go with Fixed Price.
    If no, or if you want room for changes, Time & Material is better.
  • 2
    What’s your budget?
    A fixed budget calls for Fixed Price.
    A flexible budget allows you to adapt to changes with Time & Material.
  • 3
    How important is time-to-market?
    If speed is critical, Time & Material enables you to start immediately.
    Fixed Price requires preparation, agreements, and calculations.
Why Time & Material Is the Best Choice for Complex Projects
Flexibility and adaptability
Development often involves unpredictable changes. Requirements can shift, needing new approaches or updates. With T&M, you can make adjustments, add features, or reprioritize without worrying about extra charges for each change.
Process control
You always know where your money goes. The team provides time reports, ensuring you track expenses and avoid overspending. This level of control ensures you only pay for work that meets your expectations.
Cost optimization
You pay only for the time and resources used. Unlike Fixed Price, where you pay for “locked-in” work, T&M allows you to save on unnecessary tasks.
At Omega we understand that every project is unique. That’s why we always recommend the Time & Material model for projects requiring flexibility and constant oversight. This approach lets you adapt your project to changing conditions without worrying about rigid budgets or deadlines that might overlook crucial aspects of your product.
Time & Material isn’t just a payment model. It’s a way to make your project more manageable, dynamic, and profitable. If flexibility and control are priorities for your business, this model is the perfect fit.