Software Development Pricing Models

Fixed price, fixed cost, and time and materials are widely used business or pricing models for software projects. 

Fixed price, fixed scope

As the name suggests, here, you define the scope and requirement specifications for the application. Based on these requirements, the software team (AnAr team) estimates the efforts and time required to deliver them. The quoted price will be proportional to the efforts and delivery time required.

This model is best suited for applications where requirements are stable and detailed specifications are defined. Requirements variability will lead to an increase in cost and wastage across the entire delivery process.

We do not recommend going for a fixed price model on product development. New product development needs to be lean, and product requirements are evolving. The product owner needs to respond to end-users feedback swiftly. Spending his time in any administrative task for managing requirements and changes can become counter-productive.

Time and materials

This model is resource and skill-driven. The client can define what skills and how many people are needed. Price is directly proportional to the number of people working on a project, their experience, and their skill levels.

The biggest myth about the time and materials model is that one needs tech expertise and management time to take up this model. If the product owner doesn’t have time or technical knowledge, they can get onboard the technical architect or lead as a first step. The product owner and this technical representative can lay the groundwork to define resource requirements and onboarding schedules.

The most significant advantage this model provides is flexibility. It is similar to having your dedicated team working remotely, without you having to worry about employee benefits, running payroll, etc.

Flipside again is the flexibility. If no change management is in place, the product owner might utilize team efforts to make trivial changes. If resources are not utilized well, it can lead to project cost overruns. This risk can be mitigated when you keep a tab on prioritization and plan. It can either be managed by you or by the offshore team.

Project cost management

Irrespective of any business or pricing model, one needs to implement cost management and control it.

We need to be lean throughout the execution process, avoiding all sorts of effort wastages. As always, Key is in execution!

For example, if each of your team members spends 2 hours filling up daily timesheets and updating, this is the most significant waste of skilled effort available. We can address this issue by optimizing the timesheet management process with the help of tools and structuring it so that they don’t waste their efforts and time.

Another quick avenue can be meetings and discussions if you have a six-member team attending a 2-hour meeting thrice a week. You’re almost spending one person-week effort without any concrete output. These discussions and brainstorming sessions are constructive; we just need to monitor and tab on time usage across the board.

There are many other avenues wherein we can effectively improve the effectiveness and utilization of your team.

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