Finding the perfect outsourcing company is not the end of the journey of seeking help. Before entrusting a portion of your job to the chosen firm, you must decide which payment model suits you best: time and material or fixed price.
In this article, we focus on demonstrating the payment structure of both models.
The Basic Difference:
Choosing the ideal payment method for your startup is crucial for success and development. Here’s what you should know about these two solutions:
- Time and material – This solution involves startups paying only for the hours worked. You and your outsourcing partner often agree on hourly rates, and developers complete their tasks, with payment calculated as (hourly rate x worked hours).
- Fixed price – Here, the final result is paramount, not the time spent on the project. Often, a deadline is set, regardless of the developers’ working hours. Whether your hired developer works 10 or 100 hours, you pay for the final results.
What to Choose?
Each method has its pros and cons, but which is better for startups?
Fixed Price:
Opting for a fixed price is ideal for startups with more financial security. Many prefer this payment method, assuming it’s safer for their project as they pay for results rather than every hour worked. However, reality differs slightly. Most startups do not have the best financial situations, and fixed pricing often leads to higher costs. Why? Mistakes, bugs, and unforeseen changes occur in every project, necessitating additional support costs, often exceeding 50% of the total price.
When deciding to work under this system, you must be confident in your project’s details to avoid extra charges. Any deviations from the initial project plan incur additional fees.
This method is suitable for short, straightforward projects.
Time and Material:
Time and material is a recommended solution, especially for startups with long-term projects. It’s safer, more flexible, and startup-friendly. With this model, you pay for every hour worked, allowing for adjustments and changes without extra charges. Payment for unforeseen errors is unnecessary, reducing the initial cost.
The flexibility extends to payment schedules, allowing startups to split payments over periods, unlike fixed prices that often require upfront payments.
At Futurum Technology, we advocate for time and material because of its transparency and honesty. We prioritize client satisfaction and believe this option offers the best balance of safety and flexibility.
For startup management inquiries, feel free to contact us. Visit our blog for more useful tips and listen to our podcast to learn how other startup CEOs navigate their companies successfully.