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Time & Material vs Fixed Price – Which Pricing Model to Choose?

For many clients, fixed pricing seems like the most logical choice. The deadlines are established, the price is set upfront, and so the budget can be planned in advance. When we suggest another pricing model, time and material (T&M), some of them are taken aback. Won’t it be more expensive? Can they control the budget with this model? And what about deadlines?



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They are even more surprised when we show them that, for some projects, T&M is actually a far safer model to pick.

So to answer all of the questions you might have about both pricing models, we decided to compare the fixed price and T&M models together so you can see which one would be the better fit for your own project.

Why is deciding on the right pricing model so important?

When asked about which pricing model they want to use, many clients go straight with a fixed price contract because, in their eyes, fixed price means lower risk. And if you look at it from this perspective, the choice makes perfect sense.

With fixed prices and deadlines, organizations can secure the budgets for their projects and rest assured that they will receive a ready product in the specified time and for the price they negotiated.

The problems start when the scope needs to be changed though – something that some clients unfortunately learn too late.

For complex projects, rewriting even small parts of the applications can turn out to be costly. Additionally, fixed price means fixed scope and deadlines that can’t be adjusted. And, in the worst case scenario, the ready product doesn’t look or work as imagined because the developers had to stick to tight budgets and deadlines.

The second model, time and material, isn’t without its drawbacks either. This model requires that the clients regularly keep in touch with the development team to find out how the project is progressing and what decisions they need to make.

For a straightforward project, this might seem like too much hassle. But the thing most clients fear when on T&M is that the project costs could quickly spiral out of control and they might not be able to cover the expenses.

So which model should you pick to avoid such issues during a project? Let’s compare the two pricing models to see where they each work best and what weaknesses they can have.

What is a fixed price pricing model?

We’ll start from the seemingly simpler model out of the two – fixed price.

This model is pretty much what it sounds like – you discuss with the development company the price for your project and then pay a lump sum after it concludes. This means that the total project cost is determined upfront based on the project’s scope and requirements and that the price won’t change.

Fixed price makes companies feel secure because they can plan the budget and secure the necessary funds to cover the costs, which won’t be anything more than what was agreed upon.

How does a fixed price model work in practice?

Let’s say that you come to us with a project for a fairly basic application. It will only have a few features and you don’t expect the requirements to change, so the entire project will be pretty straightforward. Here, a fixed price model might be a good idea – we’ll estimate the project’s cost, give you a set price for the application, and estimate the deadline by which you will have a ready product.

What if you suddenly wanted to remove two features from the scope and replace them with new ones though? That’s when the problems start.

The price we gave you earlier was for the feature set in the first brief, so changing anything in the scope could be complicated. We’ll have to first discuss with you the scope of the changes, create an annex to the contract, and – unfortunately – also add the cost of the changes to the contract.

The same problem could be encountered due to any unexpected project challenges or issues arising as the project is underway. So, if you decide on the fixed price model, be prepared that we’ll have to first create a very detailed specification of the project with all possible project risks included and meet with you a couple of times to clarify all requirements.

That can take up to a few months and the project can’t start until we have all of the documentation ready, so that might significantly extend the project timeline and postpone the implementation date as well.

When is a fixed price model a good choice?

The fixed price model works best for straightforward projects (around one to three months duration) in which the scope and requirements are well-defined and unlikely to change (at least not significantly). Plus, with simple projects, there’s typically less room for things to go wrong, so you don’t have to worry about sudden and unexpected scope changes.

We often also recommend fixed prices for projects where the main condition is that the budget can’t be exceeded, such as those funded through the EU.

Example of a project where a fixed price might work well: An MVP version for an online store with a precise list of required features.

Pros and cons of a fixed price agreement

✔️ Pros

  • Project costs and timelines are easier to predict.
  • Smoother budgeting and cost planning for clients.
  • After a few initial planning meetings, clients can leave all the work to the development team and only return when the product is ready.
  • A good option for projects with strict budget requirements.


  • Minimal flexibility and adaptability.
  • Changing anything in the project will be quite difficult.
  • Meetings and project documentation will take time (between three and five months)
  • There’s a risk that the ready product might be half finished if the project cost were underestimated, or that clients will have to pay extra for adding changes outside the initial scope.
  • Fixed price models very often aren’t a good idea for projects that will affect existing business processes as there’s always the risk they’ll already look different after three to five months of creating documentation plus the next X months of development.

What is a time and material pricing model?

On a time and material contract, clients pay for the time and materials that the development team needs to finish the project rather than a fixed sum for the project.

The development team estimates how many working hours they will need for each project task, multiplies this by their hourly/daily rates, and then adds the costs of any materials needed for the project. That gives them a rough estimate of how much the project will cost.

And the “rough estimate” is precisely what makes many clients so anxious – they worry that the project costs can quickly inflate and they will end up with a product that is way over their budget. In some cases though, T&M projects turn out to actually cost less than they would on a fixed price contract.

How does a time and material model work in practice?

Let’s use the application development example again, except this time you are coming with a project for a fully-fledged business application. You do have a list of goals and requirements for the platform, but estimating and specifying every detail will be quite tricky – especially since the scope might change during the project. So, rather than meticulously planning everything now, you’d rather that the development team start working on the parts that are already specified in the scope and eventually adjust them as the project takes shape.

The development team then suggests using a time and material pricing model as this would allow them to swiftly make changes to the scope based on your feedback. Plus, a T&M contract would allow them to start working on the project almost immediately, since they’d only need rough estimates of the project goals and deadlines instead of the detailed project specifications.

When is a time and material model a good choice?

Exactly because T&M is so flexible, it’s a great choice for any project whose requirements are not fully defined yet or may change over time. The project will be divided into smaller tasks and the developers will invite you to meetings as they finish each part, during which they will share their progress, amount of time and resources used, and also ask for your feedback on the current status.

And now something you might find surprising – T&M is also the better option when you want to have full control over how long the project will take, how many resources are required, and how much you will have to pay in the end. How? Precisely because you’ll be talking with the development team regularly.

During bi-weekly or monthly meetings with the development team, you can:

  • Get detailed reports about which parts of the project are ongoing and which are already finished.
  • Learn how much time the developers spent on the tasks and what materials they used.
  • Hear about any unexpected setbacks or challenges that occurred during the previous iteration.
  • Share your comments, ideas, and/or issues with the team.

This way, you hear regular feedback on how your project is coming along, and there’s little to no risk that you will be unpleasantly surprised after getting the “ready” product. For extra budget safety, you can also ask the development team for a budget cap (either monthly or for the entire project).

Pros and cons of the T&M price agreement

✔️ Pros

  • The project scope can be changed and adjusted during development.
  • A client can closely track progress of their project, the hours that developers spend on it, and the resources they use.
  • More control over the costs because clients can see exactly what they are paying for. They can also ask for a budget cap at the start of the project to ensure the cost won’t exceed this maximum.
  • The project can be started sooner as there’s no need for lengthy planning or documentation.


  • Without clear boundaries, the project can grow beyond the original scope, resulting in increased costs and delays.
  • Deadlines may be difficult to estimate.
  • T&M requires more involvement from your side.

Fixed price vs time and materials – main differences

Fixed PriceTime and Material
Best forShort and simple projects
Projects with clear and detailed specifications
Projects where the scope is unlikely to change
Large and complex projects
Projects where the specifications or details might change
Projects where clients want full transparency and control
over the progress and budget
Initial scopeDetailed and “set in stone”Vague
FlexibilityVery limitedVery flexible
DocumentationLong and detailedRough
Client’s involvementVirtually only during the initial stage when the specifications
have to be clarified. Can but don’t have to take part in the actual development process.
Will be invited to bi-weekly or monthly (depending on their needs)
meetings with the team, during which they can give feedback or discuss changes to the scope.
Budget and paymentDefined price that can’t be exceeded.
Typically one-time, paid after receiving a finished product.
All changes outside of the scope cost extra.
The payment method can be tailored to the client, often divided into installments.
DeadlinesEstimated early, strict.Approximate.

Why time and material might be a better fit for your project

Clients keep asking for the fixed price model because of one thing – it makes them feel secure. They think that if they have the price and deadline for the project “set in stone” then they have a “guarantee” it won’t go over budget and will be ready in time. And, for simple or very detailed project requirements, the fixed price model does work very well.

When it comes to more complex or longer projects where it’s simply impossible to specify and estimate everything, the T&M model might be a better option because it’s:

  • Flexible – the project scope can be modified and updated as the product is developed, giving clients far more space to tailor the product to changing requirements.
  • Fast – in many cases, T&M projects can actually be finished more quickly than fixed price ones because developers don’t need to create detailed product specifications before the project can be started. Any sudden changes to the scope or unexpected issues can be solved faster with the T&M model as well, as developers can swiftly modify the scope and implement the necessary changes.
  • Transparent – clients will get a detailed progress report after each stage, so they will know how the project is coming along, what elements are already done, and how much time the developers spent on each task.
  • You pay only for completed work – together with progress reports, clients will also get detailed information about how much each project stage and task costs and what materials were used during them. That way, the client knows exactly what is included in the project costs, so there won’t be any unpleasant surprises on their invoices.


So, which model out of the two should you choose for your own project? That all depends on the nature of your project.

If you have a well-defined scope and know that the requirements won’t change much, a fixed price contract may be the right choice. On the other hand, if you want to have more control over the direction of the project and flexibility is your priority, then a time and material contract would probably be a far better option.

And, in case you are still caught in two minds, at Inwedo we can help you make the right decision and choose the model that aligns with your goals and expectations.

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