The cost of creating dedicated software is one of the first issues companies consider when planning to digitize and automate processes. However, the question “How much will it cost?” does not have one simple answer. The final cost is influenced by a number of factors: from the scope of functionality, to the chosen technology, to the way the software house is billed.
In this article, we look at the most popular billing models - Fixed Price and Time & Materials - and show how they affect a project's budget. You'll also learn what to consider when pricing and what questions to ask a software company to avoid unexpected expenses.
Fixed Price model means a predetermined amount for the entire project. The software house prepares a quote based on an analysis of the requirements and scope of work, and then executes the project as specified. For the client, this solution has a key advantage: the certainty of a fixed cost. This makes it easier to plan the budget, especially when the project has clearly defined goals and does not require frequent changes.
Unfortunately, a fixed price comes with less flexibility. If new ideas emerge during the course of the work, or functionality needs to be adapted to a changing market, each modification may require additional pricing and a formal contract amendment. As a result, the implementation time may become longer and the project itself may lose its fluidity. It's also worth remembering that the Fixed Price software house often includes a safety margin for unforeseen difficulties. So in the end, you may end up paying for more hours of work than will actually be used.
The Time & Materials model gives the client much more freedom to make changes. Here you pay only for the actual time spent by specialists, which allows you to modify the scope of the project as you go along. This approach is ideal when you don't have a full specification yet, or you want to develop the product iteratively (that is, dividing it into small stages, each of which brings value), responding to current market or user needs. This is the approach most often used in agile-managed projects - you'll read more about it in this post.
On the other hand, the final cost is harder to estimate - the more changes, the higher the cost. Therefore, a common practice is Time & Materials with Cap, i.e. setting an upper limit on expenses. This gives you flexibility while guarding against uncontrolled cost growth.
Pricing an IT project is not just about adding up the hourly rate for a specific number of days or months of work. To understand why different bids differ so much, it's worth looking at the factors that influence it.
The more extensive the features, the longer the time required to design, code and test them. More features also usually means a larger project team.
Connecting with external tools (e.g. ERP, CRM, WMS) often requires additional work and expertise, which increases the final price of the project.
Some programming languages, frameworks or libraries may be more costly to maintain or require developers with a narrower, and therefore more expensive, specialization.
Programmers, testers, UX/UI designers and project managers - each of these specialists has different areas of expertise and rates. More people involved means higher costs, but also a chance for faster implementation and higher quality of the final product.
The cost of services in Western Europe or the US can be much higher than in Central and Eastern Europe, including Poland. Therefore, companies from abroad often choose to outsource in Poland, getting good quality at a more competitive price.
Of course, these amounts are approximate - the final price will always depend on the specific demand, level of complexity, as well as the billing model.
Find out whether the software house works on Fixed Price, Time & Materials or offers a combined solution. This will allow you to better adapt the way of cooperation to your own style and needs.
Ask for an estimated budget and schedule. This will help you avoid discrepancies in financial expectations. Remember, however, that for projects managed in an agile way (Agile), it is impossible to get a full schedule of work. This is due to the high degree of flexibility and the fact that the scope of work changes during implementation. You can read more about Agile project management in our e-book.
Setting clear rules at the very beginning will avoid misunderstandings and unpleasant costly surprises in the future. Usually accounting for changes during the project is related to the way IT projects are managed.
Check how the software house reports on the status of the work and any obstacles. A good flow of information is a guarantee of smooth cooperation.
It's a good idea to be clear about all potential charges in order to reliably plan the total budget.
The choice between Fixed Price and Time & Materials depends primarily on the nature of the project and your expectations:
Fixed Price is cost certainty, but limited flexibility. It will work well for small, well-defined projects.
If you are still wondering which billing model will be best for your project, contact the experts at 2Simple and schedule a free consultation. Our experts will help you choose the perfect solution for your needs - both in terms of cost and software development capabilities.
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