4 Types of Software Development Pricing Models – which one to choose?

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Building software’s from the ground up is something that can always be a challenge for companies. The process does not just end when you have successfully created a code and executed it, but in fact that is just the beginning of everything. Once you have your foundation laid you then have to start focusing on the other aspects in the process, which include designing, planning, testing, deployment and analysis of projects. Building a robust application should be your main goal, now to build one it is first important to understand different pricing models available.

There are four pricing models that can change the game of your custom software development projects: Fixed price, time and material, mixed model and dedicated team. Let’s look at these pricing models in more details so you can kick start your projects with a complete know-how of the project development phase.

1.Fixed Price Pricing Model

This pricing model specifies all technical and business requirements, such as product release date, deadlines and any sort of budgets. The main focus here is to work on a project as per the plan made for it because going off track costs both time and money. Being focused on the projects roadmap is important, any negligence leads to extra work pressure, late delivery and change in budget expectations. Project planning and accurate cost information are the main 2 things in this pricing model. You cannot enter a project development stage without defining your project goals, specifying technical requirements and designing mockups.

There is however a risk of managing this model, strict deadline and requirements make it hard to catch up with at times. However, in this case most responsibility lies on the service provider as they are the ones responsible for ensuring all operations are run in a smooth manner and that the project is completed on time within the budget initially chosen.

You should only go for a fixed pricing model when your project falls under some certain circumstances. Firstly, your site or application needs to made in a limited budget and time, it should be short term and not last longer than 2 months. Secondly, you must have all technical documents ready and at your disposal, this includes mockups, features, functionality and user journey maps. Thirdly, you are sure that the requirements of the job will not change, everything will remain the same as the initial plan. Finally, you agree on the scope of the project in advance, you are okay with delegating the software’s requirements and waiting for the results.

2. Time and Material Pricing Model

This pricing model allows you to unlock the highest level of flexibility, where you are charged according to the number of hours you spend on the project. The requirements of the project, ie: budget estimated, activities to be performed, work to be done, time it will take are all discussed beforehand but there is always room for change and alterations due to the flexible model. The payment of the projects are settles at different internals, which is usually after every month. What makes this model a really attractive one is the swift alterations and scope of the project without incurring higher costs and exceeding time duration. You can also view results during the developmental phase and monitor day to day progress with any hindrance allowing you to get the exact software solution that your business requires.

You should only go for a fixed pricing model when your project falls under some certain circumstances. Firstly, you find it challenging to finalize all the requirements of project development at the beginning and require the need to make changes along the way. Secondly, the development of the project requires more than 2 months to finish where technical specifications and requirements are repetitively evolving and there is no limited time or budget constraints. Thirdly, you have authoritative to control the scope of the project and decide the budget accordingly. Finally, you have direct impact on the scope of the project and you have the desire to start the project as soon as possible.

3. Mixed Pricing Model

This pricing model is a combination of both the fixed price and time and material pricing model, based on tight and strict deadlines but at the same time still allowing some tendency of flexibility. Choosing the mixed pricing model is preferred when you have a specific time frame decided in which you want to release the product. However, in this case the requirements of the project are usually still unclear and not fully planned or have a set order to be followed. With this model you can alter the scope of the project, manage extra costs and ensure that multiple revisions take place.

You should only go for a mixed pricing model when your project falls under some certain circumstances. Firstly, the purpose of your project is to launch the digital solution to the target market audience as quickly as possible. Secondly, the size of your project is short term to medium term and can be completed within 2 months. Thirdly, the duration of the project is set but the requirements are unclear however you still desire to achieve the best set of results within a limited period of time. Finally, you have a large say in the project development phase and are eager to put in your input, feedback and response.

4. Dedicated Team Pricing Model

This pricing model has the major benefit which is of the phenomenal level of control. You are able to personally view and interview members of the team to see their strengths and weaknesses which will then further help you build a team according to your requirements. You can easily increase and decrease the number of people in the team and replace old resources with new ones respectively. You can easily communicate with all members of the team, assign them tasks and then give and get their feedback on things. You can almost say you are basically building up an in-house team, rather than recruiting training and having a software license you are just focusing on enjoying the services part of things. The pricing model of a dedicated team is very flexible and you pay salary on a monthly basis to employees, that too when approved by you.

You should only go for a dedicated team pricing model when your project falls under some certain circumstances. Firstly, you desire to have a direct impact on the development phase, people who have a background and good experience in project management are a perfect fit for this model. Secondly, your goal is to control all the budgets, finalize the scope of the project and manage project completing during the developmental process. Finally, assembling the team is your main aim, where you plan to hold all face-to-face meetings and build a team beneficial for your tasks.

Final Thoughts

It is important to understand that finalizing a pricing model based on which one you like the sound of best will not cut it, your choice should be dependent on the need of your project. It is important to keep some points in mind when selecting the right one. Let’s quickly recap those points to remind you. The main points include the complexity of the project, the size of the team you have, the estimated budget you have for the project, the time duration you have for project completion and finally, the level of control you expect to have on your team. So, take good care when making any decisions regarding your project.

If you are looking for a seasoned developmental team to take on your project, Get in touch now for a FREE business analysis session. Read our guide “How to Choose a Software Development Company” before signing a contract. We are glad to assist you!