Fixed price vs time and materials
The two basic pricing models in software projects: a fixed price agreed in advance for a defined scope, or payment based on the actual effort and costs spent.
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Why it matters
A fixed price gives budget certainty but requires a clear scope; every change becomes an additional quote. Time and materials gives flexibility but needs budget tracking. Time and materials usually suits work with an unclear or evolving scope, while a fixed price suits clear, bounded work.
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Example
A company has its corporate site built for a fixed price because the scope is clear from the start. The same company's customer panel is developed on a time-and-materials basis with a monthly hours budget, since needs will become clear during use.
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Common mistake
Looking only at the lowest fixed price on a project with an unclear scope. Everything left out comes later at extra cost and the total ends up far above expectations.
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Related terms
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