Fixed price contracts are pretty common. We can find countless cases where the client wants to get a strict plan on a strict budget. The cost of the project will be determined by documentation. If the documentation is not prepared, it can be created during the price modeling phase, which includes a project requirements analysis with an eventual estimate. After the estimation stage, the contract states that the scope of the current project cannot be changed. Any upcoming changes will be considered additional functionality that will be implemented after the current development stage.
How to perform a correct estimation?
First of all, we need a full understanding of the client’s goals and the presence of the necessary requirements. Thus, the more information we can get from the client, the more accurate the analysis can be, and the easier it is to determine a fair price. Abundant information makes the fixed price model ideal.
However, the whole case may be more complicated than it seems at first glance. So, let’s jump into it and figure out when it is a good idea to follow the fixed price approach.
The main conditions to follow
In order to follow the fixed price model in the best way possible, the following should be true:
The project has a clear and transparent scope
The client and contractor know exactly what they are responsible for, and know each other’s abilities, competency level and efficiency
These conditions make it a win-win situation for the client and the contractor. The client thus feels confident about the contractor, while the contractor knows exactly what to do.
When is it not a good idea to follow the fixed price model?
Let’s look at two basic issues related to fixed price models:
The contractor’s side. There are a lot of situations where the client is not sure about the project details, or how to describe them in a clear and transparent manner. Sometimes they are unable to give an understandable description of the content to help guide the development team.
The client’s side. In perfect circumstances, the client knows exactly what should or should not be in their requirements list. In other words, every detail of the project is documented. Note that once the contract is approved, the client has no room to add new project terms under the current conditions. The client must be able to provide info on exactly what kind of end product they’re expecting, understand when the project should be “done” and what this word entails.
With KeyUA, the client can be patient, as we know how to do things efficiently: we’ll bring a comprehensive list of questions related to the planned project. We thus simplify the required planning process by getting the information we need to produce a fair fixed price.
What to expect from this model
Let’s assume that a project’s scope is neat, specific and relatively small. Something pretty simple, with a defined list of features and workflow. In this case, the client can easily provide all the details and requirements in a simple manner. If the client can provide designs, it will further simplify development planning.
Using a fixed price may seem like the perfect choice in this case, but reality can be a little trickier. This model is only favored in cases where the client has spent a significant amount of time obtaining all the information required, and is sure that this information is 100% correct. In order to save time, the client can hire a developer, who will help gather information, but the effort here is still appreciable.
When there is a lack of information, or an abundance of misinformation, the client will be forced to ask for revisions, which can slow the process.
The fixed price model works well for small, clear projects. It can be suitable for larger projects as well, provided the client can split the project into simple, clear and informative milestones.
However, there are many factors that can render fixed pricing suboptimal, and repercussions can be felt both in the eventual price and the speed of project development. If you are looking for an organized development team – drop us a line and tell us about your project so that we can put your idea into practice.