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Fixed Cost vs Hourly Rate: Which One is Better for Your Project?

The first thing you do after hiring a software development company is signing a billing contract. The billing contract also mentions the price you pay for getting the project developed. The price of a project is developed depending on several different aspects like the type of project, number of hours, technologies etc. There are two major modules in this case: Fixed Price and Hourly Rate.

Fixed price is usually chosen for projects that are smaller, while the longer projects are done on hourly rates. Both fixed price and hourly rates are very different in the way they work and obviously, they will have their own pros and cons. Today we are going to take a look at the difference between fixed price and hourly rate for developing a project and which one is better. If you need help with hiring an outsourced developer today when catering to any project.

When you go for the hourly rates, you are invoiced for the number of hours given to your project. This module is often preferred when the project is bigger in size, or you are unsure about the number of hours it might take to finish the project. The fixed price project is a set price. It is suitable when you know what exactly you require in a project and there are no changes expected in the middle of the development process. The payments are done in the form of milestones of 4 or 5.

Advantages of an Hourly Module

  • Hourly billing is more suitable where there is a greater need for flexibility and where you and the developers are not sure how long it will take to develop the project. Here the scope of work also depends on the outside factors, or maybe there are changes in the timeline in the future.
  • Because this module is more flexible, it allows you and the developer to coordinate better and work together more in the future on a repeat basis. The scope of work can be increased here without actually having a new project.
  • The flexibility also allows you and the developer to connect better during the project lifecycle. This way you can make sure there is proper effective communication between you and the developers.

Advantages of a Fixed Module

  • A fixed price project is usually small, so you can try out new developers for the project. It allows you to experiment more with different developers.
  • A fixed price project has set expectations because the size is small and there are no changes expected. There is a very narrow scope of work here. Here you will know exactly what the product is and when it will be delivered to you. Both you and the developer get to be on the same page throughout the development process.
  • If your project requires a short timeline, this module is better as the start and end dates are well defined here and already known in advance. But you can also add milestones later if required.
  • It’s easier to stay on your budget here because the price has already been decided in advance. You can pay for the project at once, or you can choose to pay in milestones.

At Glance

You can always agree to a maximum number of hours on a weekly basis in the hourly rate module, this will help you keep your budget in check. You can use applications that show you the number of hours your project is worked upon. So there are no disputes about that. Developers can also add hours manually to a weekly timesheet.

In the fixed price project, the milestones are only released once you approve the work that is presented to you. There are milestones here so it will give you set expectations about the scope and the deadline of the project. This can be helpful to both you and the developers.

Choose the One Suit for You

The major factor deciding the payment module for your project is the type of project you are working on. If the project guidelines are well-defined and there is a clear understanding along with limits on the budget, you should go for the fixed price module. If the project requires more flexibility and more changes are expected to be introduced during the process, you should prefer the hourly rate module.

This Debate Ends with You!

Which one fits your needs best- hourly or fixed? If you have any questions related to pricing models or would like to build a project of your own, Contact us to learn more about our development processes and how we work with our clients. Feel free to contact us.