A Pricing model of outsourcing IT services refers to a contractual agreement between a service provider and a service gainer. Initially, an outsourcing agreement built upon Fixed Price Model but recently there is an abundantly used model namely, Dedicated Team Model. Both clients and contractors have to decide whether it will be a dedicated team model or Fixed Price contract. So which pricing model may be the most beneficial for both a client and a service provider? Let us take a close look at this.
Time and Materials vs Fixed Rate: which version is extra suitable for your challenge?
A proper type of contract minimizes the risks and increases the chances of having an effective result for both the consumer and the service issuer. Hence it is highly essential in choosing the proper type of contract. There are two specific main pricings: Fixed Charge and Dedicated Model. Every kind has its blessings and disadvantages; consequently, the selection among them may be a complicated project. You could compare the benefits and drawbacks of a real pricing version and pick out the higher choice depending on a project kind, that is, in reality, a better option. So let us test this in detail:
Fixed Price Contract
This version suggests that the development budget is accepted before the works begin based on evaluation in their amount and could no longer be modified later. Assignment time limits also are permitted at the beginning of the challenge.
This model is ideal for small and medium level project with clear and well-defined requirements. The project requirements under Fixed price model are well documented, and moreover, they don’t change at the time of implementation. The client should be able to share his clear vision of the product with developers to ensure appropriate final results.
It’s far very convenient in a brief look. The consumer genuinely sees the amount they need to pay and the agenda of transport. The timeline of the entire technique, its fee and venture functionalities are regarded without delay. Just pay for the venture and await the paintings to be completed, with minimum interference into the technique.
- Explicit requirements and determined deadlines.
- Fixed budget
- Permanent project scope
- Settled time frame
In this model, it is imperative to discuss everything and make an estimation of the appropriate cost of the project at the very beginning.
Advantages of the Fixed Price Model:
- Predictability: Predictability is one of the critical factors that any entrepreneur seek for business. Planning figures 1-3 months ahead can get you the exact expenses.
- Predicted budget: The customer knows precisely how much money will be spent on the project implementation, and this makes planning easy. You know the exact final price of the entire project.
- Predictable results: The list of tasks to be completed within the process, and a conclusion that must be achieved, are agreed upon at the initial stage.
- The administrative load is minimal
- Low-risk model for customers
- High assurance of project completion within estimated budget and timelines
- Highly motivating for service providers to be efficient and productive
- Ease of management. Payments to the service provider are mainly based on a percentage of work performed. Such workflow requires little involvement since expectations are transparent and predictable.
- The client is aware of virtually how lots of cash might be spent on the challenge, and this makes planning less difficult. You know the exact final fee of the whole mission.
- The list of responsibilities to be completed, and a result that must be attained is agreed upon at the preliminary stage.
- Both the consumer and carrier issuer realize the timeline allocated for undertaking implementation.
- All the information are detailed in the agreement.
Disadvantages of the Fixed Price Model:
- Lack of opportunity to feature adjustments after the settlement changed into signing.
- Carriers may consist of all viable risks of additional improvement hours into the constant charge agreement.
- You may need to pay greater for any additional exchange that is not protected in the scope of labor inside the contract.
- If you missed some task information, you could receive extraordinary output from what you expected.
- If any additional responsibilities seem within the path of development that is not estimated before, the service issuer may additionally forget about them which will have the ability to complete the whole lot on time; this can affect the first-rate of the venture.
- Customers have no control over resource utilization as maximum ownership is with the service provider
- Lack of flexibility is the major weak point of fixed-fee agreement. As a customer, you are responsible for any emergent changes that you’ve initialized or those that are beyond the vendor’s competence.
- A high-risk model for the service provider
- Quality can suffer as end-to-end development is managed by the service provider
A fixed price model may be a great choice in the following cases:
- A fixed price model is perfect for a small project both in the scope of work and timeline;
- List of tasks is defined 100%, and the chances for change is very less;
- Flexibility is not needed in the process since everything has been agreed upon in advance in the contract;
- Turnkey approach. It is a typical solution, where only minor changes are made to adapt to a particular client.
In general, fixed price model has its advantages. But, it is not the best option when speaking of software development.
Dedicated Developer Model
The dedicated team in software development is an advantageous choice for long-term co-operation. This model works as a dedicated service provider for a period of time. It is also used when the client’s own team lacks skills or expertise in specific areas. The client may decide to manage the team from their side or to assign the service provider’s project manager to coordinate the communication process. The team usually works from the services provider office.
The payments may be monthly, or weekly depends upon the team size. The payment is composed of team members salaries, service provider’s fee, including administrative overheads. This model is advanced where the scope of the project could not be strictly defined, and requirement may be changed during the development process.
In this pricing version, the patron can pay for hours truly spent through the issuer. Relying upon the patron requests, payments are made after every level of the procedure. Timeline and value are approximate, the result and its satisfactory of the mission are the maximum critical.
The essential gain of time and materials model is flexibility. inside the manner of development, the purchaser might also alternate necessities, disable and upload functionality
The development team isn’t constrained by using the tough timeline and estimate, so it has an excessive inspiration to are searching for and offer the handiest approach to the consumer. They can pay more interest to work if it helps to acquire the best end result.
- The customer needs to outline what exactly he wants. The client has to determine the number of employees that are required for his project and which skills they should possess.
- Provider hires a dedicated team that corresponds to the project requirements. The team together with the client agree on the workload and project requirements for the specified amount of time.
- Experts are gathered into the team and start work during regular hours.
- The client has full management control over the project and team, while the dedicated team services are concentrated on providing the best results.
The project is divided into different stages; each of them is estimated separately (in hours). Then the estimates are agreed with the customer. Once the task is completed, the customer pays for the work completed task, and developers start evaluating and working on the next milestone.
Main advantages of Dedicated Development Model:
- You can easily make changes, change the scope of work and use flexible development methodologies in the course of development, (an agile methodology).
- You pay for the actual completed work only. You pay for the time spent by the provider directly on your project.
- The client communicates with the project manager, and the manager assigns tasks to the team. The client has access to any required information and is continually aware of the development process by weekly or daily, as per the requirement of client.
- You can quickly create a product MVP and test, for example by releasing a test version. Which helps to understand what needs to be changed or improved.
- Which features should be implemented and is it better to start with simpler or more complex things? The choice is yours and you may change at any time.
- Simple to understand and implement
- Predictable and defined budget
- Can be effectively used to compare prices across service providers
- Full control over the management of the team
- Changes can be requested at any time as the scope is not being defined.
- Low-risk model for both service provider and customer
- Continuous communication with the team through everyday communication with the use of web tools like Skype, Asana, Trello, and Basecamp
This pricing model also has its disadvantages:
- If the team works in another time zone, communication may be both a positive and a negative factor. Not every customer may keep in touch constantly.
- Only the approximate project costs and timeline is known, there is a risk of exceeding the expected budget.
- In the process of developing, project tasks may change; therefore, it is complicated to forecast the timeline of the project accurately.
- The formalities like reporting, accounting require a lot of time.
- Inefficient for short-term projects
- Lack of ownership from service providers
- No time/effort commitment from the customer in the utilization of resources from service providers
Dedicated Development Model is applicable for the following situations:
- the client has no clear requirements for the project and detailed specifications
- requirements of the project and scope of work are expected to change in the series
- of development;
- large scale projects and presumes a large scope of work;
- the product quality is of ultimate importance to the client
Dedicated Development model is for attaining a high-quality product. The flexibility of the work, willingness to changes, cooperation and close communication add to the achievement of this target.
Each of these two types of contracts has its advantages and disadvantages. We described them in this blog and hoped it helps you make the right decision.
Consider the requirements of your business. If you are not sure, which model suits you, we are always ready to help you and answer any of your queries. We have extensive knowledge and experience in successful project implementation, and we are happy to assist you in giving life to your ideas.
Dedicated Team model
- Team + regular delivery
- Large and mid-sized projects
- Evolving requirements
- Flexible development
- Maximum involvement of the Client
Fixed Price model
- One-off product delivery
- Small projects
- Well-elaborated fixed requirements
- Fixed budget and timeframe
- Minimum participation from the Client
iScripts is one of the leading service providers in dedicated development. We have an extensive history of setting up and maintaining different projects for several corporations as well as startups. The perfect combination is expert developers and a personal project manager. iScripts.com has the experience, the process, and the staff to build your web or mobile project not just to completion, but build it to “success”.
Today outsourcing is no longer a simple concept but a choice of various options for product development and the choice of a price model. That is why it is important to understand how it differs and how the right one can help to save your time, funds and give other benefits. So, what to choose: Fixed Price, Dedicated Team – is a matter of the company’s needs.
iScripts Dedicated Programming Service Comes with a Huge Selection of Benefits Including:
- Reduced Rates: Compared to regular customization projects, our dedicated programming services have reduced hourly rates.
- Dedicated Staff: A dedicated programmer will be assigned for your project and will work on the project for 8 hours a day, 5 days per week.
- Specific Timelines: Weekly meetings will be conducted on the project status and complete transparency shall be maintained.
- Plans and Monitoring: Weekly Reports containing the project status and the works allocated for the upcoming week will be sent to you on a regular basis.
- Extra Perks: Any holidays and leaves taken by a programmer will be tracked and compensated by the developer by working extra days.
- Manager On Call: A dedicated project manager will manage the project and he/she will handle all the operation tasks on behalf of you.
- Easy Communication: Interact live with the project manager and the programmer regarding the project – whenever required. You can also interact with your developer and project manager via email.
Which type of projects can you work on?
Our programmers can implement web software development projects including: Creating web applications from scratch, maintaining and modifying current websites, creating custom designed websites, modifying existing proprietary applications, customizing open source applications, database-driven websites, intranet productivity applications, social networking sites, eCommerce, billing systems, custom applications, shopping carts, Content Management Systems (CMS), mobile apps and much more.
Do you have a portfolio or a list of previous clients?
Get a quote for your project from us here!
Have questions about our web software and mobile apps and how it can work with your existing business or online business idea? Call us at (312) 423-6728 with any questions you may have. We’d be happy to explain how our software works, including any additional business, needs you may have. We also offer custom development of web and mobile apps at a reasonable rate.