Fixed Price vs Hourly Rate: Which Pricing Model Suits Your App Project Best?

Of all the decisions you’re going to make in an app development project, a critical decision is app cost estimation. Choosing the right payment model is important to make sure you spend your budget effectively. But how do you know which model is the best for your app?

Fixed price and hourly rate are two common pricing models. In this article, we will take a look at what the fixed price and hour-to-hour models are, their pros and cons, and help decide which one is better for your project.

What is the Fixed Price Model?

In the fixed price model, you and the developer agree on a set price for the whole project. The scope of work, timeline, and costs are all determined before the development starts. This model tends to work well for projects that have well-defined requirements, so an application cost estimation by expert teams like Digiteum becomes much easier.

If you know exactly what features your app should have and have detailed specifications, a fixed-price model may suit you just fine. You will know in advance exactly how much the project will cost, so there won’t be any surprises in the future. However, this doesn’t fit every project, which takes us to the next point.

What is the Hourly Rate Model?

In the ever-changing app development market, this model will allow you to pay the developer for the actual time they spent working on your project. Instead of a fixed price, you are billed by the hour, based on the hourly rate of a development team like Digiteum. This model is much more flexible since you can change your mind about the project scope in the middle of the development. As long as you are paying—it’s getting done.

If your project is complex or undetermined, then an hourly rate model may suit you better. You will be able to test and change during the process whichever features you need, as long as you have an available budget for it.

Pros and Cons of the Fixed Price Model

Now let’s take a look at the pros and cons of the fixed price model when it comes to application cost evaluation.

Here are some of the advantages:

• Predictable cost. You know exactly how much you will pay for the project before it has started. This will make budgeting more predictable, especially in cases when you have a strict limitation on the budget.
• Pre-defined scope and timeline. You and the developer team agree beforehand on what needs to be delivered and when. Chances are, it will pay for itself when you’ll get to revenue.

Here are the key disadvantages:

• Less flexibility. Since the price is fixed right from the start and so is the scope, making changes in the middle of the process can be challenging. Any unplanned adjustments will either require a re-negotiation or a new contract altogether.
• Underestimating complexity. There’s always a risk of not being able to account for anything, considering what a complex process development is. In case the project becomes far more complex than expected, the developer will end up cramming everything within the pre-planned timeline and budget, which can lead to some sloppy work.

Pros and Cons of the Hourly Rate Model

Now, let’s look at some of the pros and cons of the hourly rate model for the application price estimation.

The pros are:

• Flexibility. The greatest pro when paying hourly is flexibility. You can change things or add a feature here and there during the process without it. This is particularly helpful for projects in which the requirements may change over time.
• Refinement. Because you’re paying for the time, you can refine the scope as the project progresses.

The cons are:

• Uncertain costs. While it is flexible indeed, hourly billing will make it more difficult to predict the total cost. If the time spent on the project continues to run over your estimations, the costs could add quite quickly too.
• Risk of budget overruns. If the developer isn’t efficient or there are just too many changes during the development, your budget will grow. It’s vital to set clear expectations and track progress to avoid unpleasant surprises.

Choosing the Correct Model for Your Application Project

Choosing between a fixed price and an hourly rate model depends on the specifics of your project. Here is a quick guide that might help you to make the right decision.

When to go with a fixed price:

• Clear requirements. If you have well-defined requirements and a clear vision of what your app should do, the fixed price model might be a better fit. With this model, you’ll know the cost and the project scope beforehand.
• Clear budget. If you are on a tight budget, a fixed price model will remove uncertainty about how much you will have to pay. You will know exactly how much you’ll pay and will be able to plan accordingly.
• Small projects. In small projects, where demands are generally clear-cut, the fixed price model often works best. There is barely any room for changes, so you can finish such a project without complications.

When to choose an hourly rate:

• Complex projects. If you don’t know the finer details, then an hourly rate model will be better. This keeps you open to adapting as you go along. Big projects or innovative ones need this room for maneuver.
• Open to changes. If you believe you may need to make changes along the way, this model of the hourly rate gives you the needed ease and flexibility. You won’t have to reset the whole contract.
• Longer timelines. An hourly charge is also good for projects that take longer to finish. You can build the app incrementally and extend its scope gradually.

Conclusion

Whether a fixed price or an hourly rate model a better option for an app project depends solely on your needs and budget. It all boils down to finding a developer who can deliver what you need within the model you choose. Weighing the pros and cons of each approach will go a long way toward making the right decision.