Outsourcing in IT projects is one of the significant undertakings in countries. With these, there is a greater need to acquire the best workforce that provides convenient services at convenient costs. Offshore IT project outsourcing is common in countries like Ukraine, India, and the Philippines.
However, a significant contention concerning IT project outsourcing lies in the choice of project or service rates. They can either be hourly or fixed price rates. The choice of whether one should go for either solely depends on a wide range of factors. But first things first, let’s dive deeper into the foundational understanding of these two pricing models.
Pricing Models for Hiring IT expertise
Different IT outsourcing companies have a wide range of services for their clients under the IT umbrella. But all these services, just discussed, come with pricing models or approaches for hiring developers remotely. The models thus enable proper team engagement and facilitation for the remote work at hand. We shall explore two critical pricing approaches for IT projects.
Fixed Pricing for IT Projects
The fixed price model is a definitive model that seeks to establish the total cost of the IT project all at a fixed price. In this pricing model, the outsourcing companies develop a project quote to share with the buyers. It is always a one-time cost that resonates with every service involved in building a project in a complete set. Usually, offshore IT companies provide fixed-price models for several IT services under the entire IT service umbrella. For instance, companies may have set price quotes for mobile application development, website development, and design, among others. The fixed prices are often set along with their corresponding durations based on the simplicity or complexity of the project. There might be a future increase in fixed prices based on various factors, including the quality of the services rendered or any other changes that may come up in the project development stage. Other factors that might lead to an increase or variation in the price include:
- Project size.
- Project complexity.
- The number of features and functionalities in the project.
- The location of the developers.
Benefits of Fixed Pricing in IT Projects
Fixed pricing in IT projects comes with a wide range of benefits to the outsourcing company and the developers or programmers involved in the project. Some of the benefits involved include:
No change in the cost
With fixed pricing for IT projects, there will likely be no future changes in the set project costs unless a few changes to the product under development are involved.
A fixed cost and time
Fixed IT project costs also come with fixed timing, so developers and programmers have a clear overview of the time and cost to spend on the project. Any extra time spent on the project will always attract extra charges. Therefore, the good thing about this model is that programmers or developers will always work under clear timelines and project costs.
The output is what is defined in the project requirements
Developers and programmers will always strive to build a product that fits the client’s needs equally. Therefore, they work under timeframes and fixed financial costs to meet all the project requirements as agreed in the first stages. The final product is, therefore, a replica of what is defined in the documentation.
Fewer to no billing disputes
Since the parties involved enter a fixed agreement with fixed cost or time, there will likely be no disputes once an agreement is reached. However, changes in the billing might only arise when a few changes are involved in developing the product. With a few changes in product requirements, there might be a need for a few adjustments in the billings.
Some key projects that suit the fixed pricing model include small IT projects, IT projects with limited scopes, and short-term projects, among others.
Hourly Pricing for IT Projects
Hourly pricing follows the hourly cost model, so buyers are billed depending on the hours worked in building a product, software, or even application. Usually, agencies come up with a quote with a description and estimation of the hours to spend on the project. The hours spent on projects may vary depending on the project requirements. Therefore, developers and programmers get paid depending on how many hours they spend on the project.
Critical Benefits of Hourly-Pricing in IT Projects
Like the fixed pricing model, Hourly Pricing comes with its set of benefits. Some of the key benefits to enjoy in hourly pricing include:
Effective use of resources
With this pricing, resources and time are used effectively, as developers only need to work with what they need at a given time. It, therefore, means that they will use resources and time effectively during project development.
Unlike fixed pricing for IT projects, hourly pricing is flexible for both parties. For instance, it is easier to stop or resume a given project as costs are paid hourly; therefore, there is no need to worry about already paid costs and time that has yet to be worked for.
It is easy to adjust the scope and objectives of the product anytime.
With an hourly pricing approach to IT projects comes the flexibility to adjust the objectives and scope of the project at a time. Doing so in a fixed-price project can be challenging as there might be greater adjustments in other sections, such as pricing. It is also easier to make changes in the middle of the project, which comes with hourly accompanying charges.
Some key projects to consider for hourly pricing include those that need to be adequately defined, large projects, and long-term projects.
Choosing outstanding pricing for your IT Project – Fixed vs. hourly Pricing
With an understanding of both the fixed and hourly pricing models, it is easier to identify what you need for your project. But there is no definitive choice when choosing a pricing model – it depends on different factors. Key factors to consider when identifying a proper pricing model include the scope of the project at hand, the project’s objectives, personal preferences, and the nature of the project, among other critical factors.
How to choose an appropriate pricing model
Even after understanding the pricing model, exploring other critical approaches to choosing a good model for your project is essential. The best approach includes communicating with the outsourcing company involved to understand its complete requirements for the project. You can also engage their consultants to discuss the pricing model they prefer. During the process, ensure a thorough discussion on the benefits and restrictions of each pricing model. Doing so will always give you an insight into establishing a realistic form of pricing between the duo.
The fixed and hourly pricing models all come with their set of advantages and restrictions. It is essential to weigh the strengths of either of the pricing models against the other to establish a proper fit for the project at hand. When choosing these models, key considerations should majorly feature the project’s complexity and size. But the significant questions that should stick in your mind are whether the pricing model serves all the needs throughout the project and whether it gives you a comfortable experience working on the project at hand.