Fixed Price Outsourcing Model: How It Works?

Fixed Price Outsourcing Model: How It Works?

The fixed price model is all about stability and security. If you have a tight budget and don’t feel like experimenting too much, the fixed price contract is the best solution, because it removes risk and gives you some control over what to expect from developers.

This model enables buyers to calculate expenses, set deadlines and requirements in a single contract. If you have strict deadlines and cost estimates, you’ll avoid additional expenses during software development and after the launch of your product. A detailed and well-structured milestone system will make a project easier to manage for both sides.

This is a perfect solution for small or medium-sized companies that seek fast results with their short-term projects lasting no more than a few months. We will just add that this model doesn’t mean you can’t modify your projects while in production. If you have such a need, just create an additional agreement and re-estimate the final price in order to get your desired results.

Fixed price is a great strategy for those who want results but don’t care about how they are achieved. This model assumes no active client involvement in development, so everything is pretty much controlled by the hired developers, o more likely their bosses.

So, the bottom line is that the fixed price model works pretty well in certain circumstances. If you don’t plan on changing anything during development, have a detailed plan and trust the hired company, then the fixed price model can do wonders for your short-term project.

To achieve the best results customers should consider some additional incentives and penalties for a contractor depending on their performance. Within this model a service buyer will provide a vendor with bonuses for achieving important metrics or critical milestones. Consider negotiating this before signing a contract.

Pros

  • A fixed budget and deadlines simplify project management for customers.
  • Customers pay only for delivered results.
  • Customers don’t need to worry about hiring new staff for short-term projects.
  • Most of the risks are taken by contractors – the client is not obligated to pay more to cover unexpected costs.

Cons

  • Lack of flexibility and potential tensions with contractors.
  • Sometimes contractors miscalculate the costs and time. It’s not the customer’s problem but a contractor could quit the project in a midway. Estimates should always be reasonable.