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Which Pricing Model Works Better: Fixed Cost or Hourly Rate?

Which Pricing Model Works Better: Fixed Cost or Hourly Rate?

When choosing an offshore enterprise software development company for your app project you can either go for a fixed cost for the entire project or can opt for the hourly development rate. Both the pricing model has their respective advantages and shortcomings. Obviously, choosing a pricing model also depends on your budget and several other factors. Hopefully, a vast majority of the software development companies offer both pricing models.

Though you can’t readily declare any of these two models as best and ideal, you need to have an in-depth understanding about them along with the respective benefits and challenges they offer. Here through the length of this post, we are going to explain all these aspects.

What is Fixed Pricing Model and How Does It Work?

Fixed Pricing Model

The fixed price model as suggested by the name itself comes with a fixed development budget that allows no further scope of a change as far as the budget is concerned. Both the project budget and cost is fixed and agreed upon in advance without leaving any scope to change the UI/UX further.

Here Are The Key Attributes Of A Fixed Cost Model

  • From the app idea, feature set and functions, OS platform and all other factors are decided well in advance before the start of the project.
  • The development team and the client starts working with a clear idea about the development project and expectations.
  • With a fixed price model the client can be assured of the result he is going to get in the end.
  • This model suits mostly simple apps as complicated projects often require value additions and changes during development.
  • This model ensures meeting project deadline with the predefined path.

What is Hourly Rate Pricing Model and How Does It Work?

The hourly rate pricing model which is also called the Time and Material pricing model is a rather straightforward model that allows the development company to charge on hourly basis leaving immense room to incorporate new features and preferences in between development process. Only the hourly rate of development is decided with a gross estimation of the required hours of development that can vary as per emerging needs, changes in features and several other factors. It always ensures delivering a high-performance product just because you can’t give priority to website development cost or app budget above the performance and quality of the same.

Here Are Some of The Key Attributes Of An Hourly Pricing Model

  • From the app or website prototype and design to development and testing, the total cost of development can always vary as per the development hours needed till the successful completion of the project.
  • This model allows incorporating changes and value additions during development.
  • This model is more focused on app quality rather than the cost. With increased development hours it can always accommodate changes and value additions.
  • The deadline of the project remains flexible this actually may linger the project completion time.
  • This model offers greater scope for the client to make suggestions and value additions in the development process.

Key Differences Between These Two Pricing Models

Each of these pricing models has a typical audience and appropriate app development projects. For instance, if you want to build a simple app with a few features within a small period and a tight budget, the fixed model comes as the ideal pricing model for you. In contrast, if you need to develop a dynamic app with a lot of features and complex interface that may need frequent testing and changes throughout the development process, an hourly pricing model will be appropriate.

Let Us Explain The Key Differences Between These Two Pricing Models

  • The fixed pricing model is ideal for tight development budget that cannot accommodate extra cost for any changes or value additions. In contrast, with the hourly model, the cost of development may vary because of the required changes or value additions during the development process.
  • When one needs fast-paced development and the shortest time to market, the fixed model works best. In contrast, one should only go for hourly pricing if he can be flexible regarding the development time.
  • While with fixed pricing model the development is primarily focused on budget and deadline, with hourly pricing the focus is on the app quality irrespective of the cost and development time.
  • Fixed pricing model suits smaller and simple projects with a tight budget. Hourly pricing suits robust and challenging projects with an uncompromising quality focus.

Challenges Faced By The Customer For Choosing Price Model

While choosing an offshore web development service or an outsourcing mobile app development company, you need to make your priority right at the very beginning. As we explained the differences between these two models, you can easily see the priorities according to which you should choose a development company or developers with a suitable pricing model.

Many clients consider having a transparent and mutually agreeable contract for hourly pricing a really challenging aspect. You need to know some basic things about the contract signed by developers preferring hourly model. In the hourly model, you make several incremental and small contracts with specific task, goals and required hours. By achieving what you get by building a part of the app you progress incrementally and continue development and value additions. Though all the details of your entire project cannot be assessed at a given time, the development process continues to validate and bring in new elements.

Unlike the hourly pricing model, with fixed pricing, you have much fewer challenges just because the entire app including its design, features and functions are determined well in advance along with the development budget and the project deadline. The only challenge is that according to most contracts as per this model no change or additions and alterations are accepted during the development process. Lack of flexibility is the biggest challenge with such a pricing model.

Why A Company Is Better Than Hiring Freelance?

Whether you go for fixed pricing or hourly rate model, it is always advised by experts to opt for development companies instead of the freelancers. With reputed development companies you always get the best of abilities and skills without risking your project on the whims of an individual. On the other hand, a freelancer may face emergencies that in turn can impact your project. Moreover, a reputed development company is more equipped and committed to delivering a better outcome compared to an individual freelance developer.

Do you want to hire an offshore development company for your next app project? We are Goodfirms ranked and globally reputed company with a whole range of award-winning and successful apps to our credit. Just feel free to drop us a message and let us respond to you at the earliest.

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Written by Atman Rathod

Atman Rathod is the Founding Director at CMARIX InfoTech, a leading web and mobile app development company with 17+ years of experience. Having travelled to 38+ countries globally and provided more than $40m USD of software services, he is actively working with Startups, SMEs and Corporations utilizing technology to provide business transformation.

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