Fixed Cost or Hourly Rate: Which is Best for Your Project?

The research giant Statista quotes that in 2022, the total spending on IT services was projected to witness around $1.3 trillion all across the world. Outsourcing IT projects to offshore mobile, web, and software development companies in countries like India, the Philippines, Ukraine, and Kenya has been a tradition for quite a long time.

Most companies from first-world countries prefer outsourcing their software, web, and mobile app development projects to IT outsourcing companies due to several reasons, low cost being the primary one. When a project is outsourced for its development, companies need to ask for the quotation that IT service agencies provide with different pricing models.

Benefits of Outsourcing Software, Web, and Mobile App Development Projects

Outsourcing development projects can offer many benefits to businesses that want to save time, money, and resources.

Some of the benefits are:

• Access to a large pool of skilled and experienced developers who can deliver high-quality solutions tailored to the specific needs and goals of the client.
• Reduced operational costs and risks associated with hiring, training, and managing in-house staff, as well as maintaining the infrastructure and equipment needed for product or project development.
• Increased flexibility and scalability to adapt to changing market demands and customer expectations, as well as to leverage new technologies and innovations.
• Enhanced focus on core competencies and strategic objectives, while outsourcing the non-core or routine tasks to the external partner.
• Improved collaboration and communication with the external partner, who can provide valuable feedback, insights, and suggestions for improving the software product development process and outcomes.

Best Websites to Find and Hire Remote Developers

What are the Pricing Models for Hire Developers?

IT outsourcing companies providing development services offer many pricing models to hire remote developers through which one can engage software developers, development teams, or programmers as per their requirements. Broadly, there are three pricing models observed in the outsourcing market.

1. Fixed cost pricing model
2. Hourly rate pricing model
3. Time and Material pricing model

While industry experts and veterans consider the dedicated model as the premium one, there are many enterprises that prefer a fixed-cost model or hourly model to outsource their product development projects where they have immense benefits.

Development companies identify the cost through various parameters as mentioned below:

1. The size of the project
2. The complexity of the project
3. The time required to complete the project
4. The number of features and functionalities of the product
5. The location of the developers or agency (the country)
6. Type of hiring model

In this short guide, we shall discuss which pricing model is best for outsourcing your project fixed cost or hourly rate.

What is Fixed-Cost Model?

The fixed cost, as the name suggests, is the total cost of the project with a fixed price. The outsourcing companies would provide buyers with a quote that mentions the total cost which is often a one-time cost to build the entire project or product. For instance, offshore mobile, software, or web development companies may present a quote of $30,000- and three months time/duration for a simple mobile application with basic features. The price may keep on increasing as per the six factors mentioned earlier.

Benefits of Fixed-Cost Model

There are many benefits a fixed-cost pricing model brings to buyers to hire developers.

• No change in the cost unless buyers want some change to their products
• No padding of the bill, all transparency
• Fixed cost with fixed time
• No need to bother about maintaining the teams
• The final product is exactly what is defined earlier in the documents
• No disputes about billing costs unless there are changes in product requirements

Which Projects Are Suitable for a Fixed-Cost Model for Hiring Developers?

The fixed-cost model to hire developers or agencies comes with a fixed number or amount of money to be paid. This sum could be paid in installments or one time as per mutual understandings or policies followed by both parties. Experts believe hiring developers with fixed-cost pricing models suits the following projects.

• Small projects
• Projects that are well-defined
• Projects with limited scopes
• Small to medium size companies’ products
• Short term projects
• Ideal for individuals with a restricted budget

What is the Hourly-Rate Cost Model?

The hourly cost model, as the name suggests, is the model wherein buyers are billed for the total number of hours used to build their product such as software, website, or mobile app. The agencies would provide a quote that shows an estimation of the total hours to develop the entire project or product. For instance, outsourcing companies may come up with a quote of 1000 hours for a mobile application with some features. The price of product development varies depending on the six factors mentioned earlier.

Benefits of Hourly-Rate Model

There are many benefits of an hourly-rate pricing model to hire developers.

• Use resources as and when needed
• No padding of the bill, all transparency
• Flexibility to stop or resume work
• No need to bother about maintaining the resources
• You may change the scope or objectives of the product anytime
• All changes in the middle of the development are possible; however, you’ll be charged for each change you want as per your development agreement

Which Projects are Suitable for an Hourly-Cost Pricing Model for Hiring Developers?

The hourly-rate model to hire developers comes with an estimated number of hours in the beginning. These hours may differ as the development process progresses; additionally, buyers may also mind that the duration of the project may also stretch if they keep on changing their scopes or advise programmers to add, edit, or remove features and facilities from their project.

The hourly pricing model gives the flexibility to stop and resume work as per the client’s choice and they can also buy more hours to start another project on the same line. Experts believe that hourly-cost pricing models are suitable for the following projects.

• Projects that are not well-defined
• Medium or large-sized projects
• Projects with flexible scopes or prone to change over time
• Medium to large size companies’ products
• Medium to long-term projects
• Ideal for companies and businesses that want no compromise on quality
• Already-built projects that require changes

Which Pricing Model is Best for You?

As you can see, there is no definitive answer to which pricing model is best for your project. You have to consider several factors as mentioned earlier such as the nature, scope, and complexity of the project, your expectations from the final product, and your preferences.

The best way to choose a pricing model is to communicate with an IT outsourcing company that you want to hire openly and honestly. You may ask their business and technology consultants to discuss the pros and cons of each option. They may help you with a fair and realistic pricing model that works best for your project.

Nevertheless, it is worth mentioning that each model to hire developers comes with its own benefits and restrictions. As stated earlier, specific project size and complexity plus the amount of time it takes to build decides a perfect model for a particular product. To check which pricing model is the best to hire developers or a development company for your project, you need to ask yourself some questions:

1. Is my project small with just basic features?
2. Do I need a simple product/project with just a few features?
3. Do I need frequent changes in my project as time goes on?
4. Is my budget small or flexible?

Such questions will help you decide on the hiring model for developers.