July, 2015

Pricing Models. Fixed Price vs Dedicated Team

Published: 23.07.2015 | 2165

Let's say you decided to create a software product without having your own developers. Therefore, you could use some help from the third party contractor. And the good question to ask would be how to pay for the service. Should it be the Fixed Price or Dedicated Team model? Or Time & Material? Each project is unique, so there is no perfect solution.

The Time & Material model requires a separate consideration, so we’ll cover it in the next article. Meanwhile, you can explore the comparison chart with all three models right here.

By Client

1. Fixed Price

It is useful:

  • For the short-term projects.
  • When you have a complete description of the project, with clear objectives, workflow and results.
  • When the product’s requirements are fixed and stable.
  • When working with the new contractor (the pilot project with a fixed rate would be a great way to test your potential partner).

The Fixed Price requires thoroughly drafted specifications. Of course, you could slightly modify the requirements, so the product meets its purpose. However, we dissuade to try changing everything halfway through the project, because it most likely will fail some deadlines along with the planned launch date.

Project Launch

In the force majeure circumstances, we define if the product’s current version changes are essential. If the client insists on modifications, but the deadlines should remain the same, we have the only one solution – toss some of the current tasks away.

2. Dedicated Team

It is useful:

  • For the long-term projects, when the current development plan includes bringing in some additional resources and /or the new technologies.
  • When the original needs and goals are unclear, like in a startup.
  • When the customer knows beforehand that requirements would be frequently modified (since you're using a dedicated team, it would be easy to change tasks and priorities in a snap).

Perfect Team

The advantage of the Dedicated Team is that you have a whole team at your disposal: the service provider takes care about the infrastructure, administrative support and specialists, and you have the right to determine the development methodology, technical platform, and even corporate culture and policies.

To decide on suitable model for you, we advise discussing your case with the contractor.

Perhaps you’d find it smarter to start from the Fixed Price and then move to the Dedicated Team.

To provide a non-biased information,we also discussed this issue with our experienced developers, worked in both dedicated team and projects with fixed rate. And here’s our summary:

By Developer

Dedicated Team

Dedicated Team Pros:

  • Some people need to have clear working plans, so they prefer the stability of working in a dedicated team.
  • The model allows the developer to get a deeper knowledge of the project’s technologies and work with them more effectively, considering software's architecture, scalability, etc.
  • Daily communication with the customer or his representative is a mandatory requirement for such projects. It evolves the developers’ communication skills and improves the mutual understanding between the client and the team.

Dedicated Team Cons:

  • Each project usually comes with the more and less interesting tasks. As a rule, the project updating and supporting isn’t the most entertaining task available. For example, one of our teams used to spend more than 20% of their time on the technical support of the various customer projects.
  • As any dedicated team is a “company within the company”, the team is a subject to all of the customer’s processes. Sometimes these processes differ from usual ones in their company. Each particular specialist adapts to the new conditions differently, so it could be a problematic issue.
  • The dedicated teams usually work with the simplified specifications, which gives the developers some room for creativity and new solutions. However, each idea must be first agreed with the product owner or client, which requires being persistent in decisions.

Fixed Price

Fixed Price Pros:

  • Some people, on the contrary, enjoy changes. Each project requires studying new technologies, approaches and solutions. Moreover, the fixed deadline is a bit challenging: it dares you to deal with the problem as fast as you can.
  • The clear specifications provide a better look at the project.
  • A new project (e.g. startup) might consider the technical solution proposed by the contractor.
  • The developers separate the product into the individual tasks already at the project assessment stage, so the customer could see the workflow ahead. The dedicated team is doing the same thing during the course of work on the customer side.

Fixed Price Cons:

  • In such projects, developers rarely interact directly with the customer. Typically, they communicate through a project manager, so he or she is responsible for the effective dialogue. On the other hand, the developers don’t have to distract themselves from tasks to join the daily conversations.
  • Fixed Price projects aren’t flexible, because this model doesn't provide an effective way to manage the risks quickly. Budget issue is also there, but it's not a developer's problem.

In the end, the same features of the different models might be considered as pros and cons at the same time. Therefore, we strongly advise to find some of your precious time for dialogue. Consider all the nuances, think the project through and make rational decisions.