Time and Material vs. Fixed Price: What Works for Your Project?

Buying a pre-existing solution for your business isn’t always. It lacks functionality or does not integrate properly with your tech stack. Maybe the market choices are limited, and you need custom software developed. You don’t have the time to create this tool yourself, so you hire a software development company. You’ve compiled a list of needs, chosen a software provider, and scheduled a meeting.

Picking a collaboration model is now the most crucial step. The implications of selecting the incorrect contract for your company may be severe, ranging from no ability to change or replace features to hurried or incomplete products that run far over budget. So, you must carefully choose the contract kind that best suits your requirements.

What is a Fixed-Price model?

A Fixed-Price model of collaboration works just as it sounds. You make a one-time payment to the growing business in return for specified outcomes. It is one of the most often used collaboration models since a fixed-price contract instills business confidence and security. They have a predetermined budget and are assured not to spend more than that amount for the job. If a business’s budget and expenditures must be tightly controlled, this kind of collaboration might seem appealing.

Additionally, there is a “fixed in stone” date by which the customer is “assured” to get the completed product. And, with a clear strategy in place that includes objectives and milestones, they can readily monitor the project’s progress. Additionally, the customer is not required to oversee the process, making everything seem straightforward and predictable. A Fixed-Price model may be appropriate if your project is modest, with well-defined features and minimal chance of changes.

When is it appropriate to go for a Fixed-Price contract?

  • It’s a small or medium-sized project or a minimum viable product (MVP).
  • You have communicated your requirements and expectations to the developers clearly – by which we mean that you can describe the user’s journey step by step and have some experience creating user stories.
  • The project’s specifications will remain constant.
  • You have no reason or time to meet with the development team.
  • You have a restricted budget for the project, or you must first get approval for the project’s budget.
  • And you are not concerned with the project’s duration but with the deliverables, which implies that the project may be completed sooner than anticipated, but you will still be paid the projected cost.

How are the Time and Material model defined?

The Time and Material approach are fundamentally different from the Fixed-Price concept. Instead of paying a lump amount upfront, you pay the software team for the hours of labor required to complete a particular project and for all materials used. This form of collaboration is advantageous when it is impossible to correctly predict the cost or duration of the project since there are no fixed costs or deadlines for the team.

Consider the following before committing to a T&M contract:

While this all sounds wonderful, the primary concern you may have here is the money. How do you manage the amount of money spent on a project if the contract does not include a specified price? And if you compensate the team for their time spent on your project, won’t the final cost exceed the original budget?

Budgeting for a Time and Material collaboration approach is more straightforward than you may believe. Each job in the project comes with an estimated cost, allowing you to budget for the project in advance. To assist you in managing the budget, you will also get frequent comprehensive reports detailing the amount of time the dedicated development team spent on a particular job, the number of employees engaged, the materials bought, and any other additional expenses.

When is it appropriate to select a T&M contract?

  • It’s a complex or lengthy endeavor.
  • You are unaware of the product’s entire breadth; all you have is a brief description.
  • The criteria or regulations are likely to vary over time.
  • You want complete control over the product’s conception and development.
  • It would be best if you had maximal adaptability.
  • You want to be compensated only for time spent; compared to a Fixed-Price model, this is the most cost-effective method for long-term projects with variable scopes.


Both cooperation methods have advantages and drawbacks. Therefore each is better suited to specific jobs. A fixed-price contract is appropriate for minor projects with precise requirements or when no changes are needed. You will be informed of the project’s cost and completion date. However, it would be best to prepare for unexpected difficulties or errors that may create delays, additional costs, or a defective product.

Larger or longer-term projects benefit from a Time and Material contract. Your product development process will be more flexible and cost-effective using this tool. Due to the lack of a final cost or timeline, you must track expenditures and project progress. T&M also needs frequent contact between your team and the engineers, which implies plenty of meetings.

To know more about Time and Material vs. Fixed Price, feel free to contact us & get a free consultation. 

Written by:

Muzammil K

Muzammil K is the Marketing Manager at Aalpha Information Systems, where he leads marketing efforts to drive business growth. With a passion for marketing strategy and a commitment to results, he's dedicated to helping the company succeed in the ever-changing digital landscape.

Muzammil K is the Marketing Manager at Aalpha Information Systems, where he leads marketing efforts to drive business growth. With a passion for marketing strategy and a commitment to results, he's dedicated to helping the company succeed in the ever-changing digital landscape.