How to Know if an Hourly or Fixed Bid Contract is for You

If you’ve gotten this far, you’re probably already set on hiring a software development team. But after making that decision, and possibly after interviewing some developers, you may be wondering what the best contract type for your project would be: fixed bid or hourly.

Generally speaking, with a fixed bid contract, your developer will charge a flat rate cost that you agree upon before development begins. With an hourly contract, however, your team will charge based on the hours spent building your software—this is where most people reach a crossroads.

So, how do you know which option is better for your project?

It’s simple: Let’s take a look at the benefits and drawbacks of each contract type. Then, you can decide what contract type would be best for you.

Fixed Bid Contracts

With a fixed bid contract, your software development team will agree to complete your project for a set price. While your team will likely share project updates with you, these projects are often fairly set in stone and offer little room for change once the contract has been signed.

Projects fixed bid contracts are a great fit for:

  • Projects with a fixed budget. - While hourly contracts are seemingly open-ended, the ‘fixed’ in fixed bid implies a means to an end. You’ll know exactly how much you’re spending and what you’ll get for it.

  • Projects with a set vision - If you have a pretty clear vision in mind for your project, you should have few to no problems communicating your ideas to your developer and receiving what you expect.

  • Smaller, less complex, projects. - The less complicated the software project is, the simpler it will be to plan. It is also less likely to call for the flexibility that a fixed bid contract is less likely to offer.

Pros:

  • You’ll have a more concrete idea of what to expect. - While a project’s architecture is often outlined with either contract type, a fixed bid contract typically requires a more thorough architecture to support the bid, which provides a more definitive idea of what to expect.

  • Your project is fully managed for you. - Thanks to all that planning, and the fact that you’ve established your expectations, you can sit back and relax, while the developers work away.

  • You should reach your deadline. - Another aspect of the planning process is establishing a timeline. Especially if your project is expected to take 3 months or less, you should be able to map out your expected deadlines and feel confident that they’ll be reached.

Cons:

  • You’ll get what you asked for. - While there are upsides to planning ahead, here’s the downside: What you asked for in the beginning is most likely what you’ll get. While making changes is possible, a fixed bid contract is often more restrictive due to its thorough architecture.  

  • There’s a lot less flexibility. - The term ‘fixed’ applies to the final product as well. Because of this, there’s a chance your developer could turn down any changes you request. Alternatively, if he agrees to make changes, implementing those changes will likely be a much more tedious process, as they weren’t included in the original bid.

  • You’ll probably interact with your team less. - Depending on how you look at it, this could be a good or bad thing. On one hand, you may be able to let the developers do all the work. On the other hand, you may end up out of the loop on your project’s progress.

Wristwatch of a Businessman

Hourly Contracts

With an hourly contract, also called a time-and-materials contract, you are billed for the number of hours your developers work on your project. Hourly contracts are often used for long-term projects or ones where the client has a less clear picture of what they expect from their software.

Projects hourly contracts are a great fit for:

  • Projects with a growing vision. - Not entirely sure what you expect out of your final product? Hourly contracts allow for a lot more experimentation, including do-overs and last minute changes.

  • Projects that are long-term - Maybe you need a team of developers to regularly add features to your website, for instance. Projects like this can be unpredictable and often call for hourly contracts by nature.

  • Projects requiring flexibility. - As mentioned, if you’re not entirely sure what your project should look like, you may also be unsure of its scope or how it should be approached. An hourly contract will allow for the leniency you’ll need.

Pros:

  • You can start right away. - While you can plan out every detail ahead of time, it’s not as necessary with an hourly contract. With hourly contracts, your developer can simply sketch out a rough outline and then dive right into working on your project.

  • You’ll get a lot of flexibility. - Said it once, and we’ll repeat it three more times: The greatest benefit of hourly contracts is the flexibility it provides. This leaves room for you to change your mind and reconstruct your software as needed.

  • You’ll take less of a risk. - It can be intimidating to hand thousands of dollars to a team and hope the project goes well. Instead, you can pay your team weekly for the hours they worked on your project.

Cons:

  • It can be difficult to track your budget. - While you’ll have more flexibility to alter your project, that means the cost of your project is more likely to fluctuate as well. Especially if you request that your team make more changes than originally planned for, you may need to pay closer attention to how much those changes will impact your total budget.

  • The final goal is unclear. - Just like your final price point, it can be difficult to say what your final project will look like. Especially if you come to the table with a shaky vision of what you want, there may be some trial and error involved with reaching the final product.

  • You may need to get more involved. - With a less definitive path to your final project, you’ll probably need to discuss and review more of your team’s progress. Otherwise, your team may get off track. Likewise, as noted, frequent communication may be required to ensure that your project doesn’t go over budget.

Handshake between a Client and Software Developer

So, is a Fixed Bid or Hourly Rate Better?

When it comes down to it, neither approach is better than the other. In fact, the type of contract you choose really depends on the following factors:

  • The size and complexity of your project

  • How complete (or incomplete) your vision is

  • Whether your budget is limited/fixed or open

In summary, if your project is fairly simple, you have a clear vision, and perhaps a limited budget, a fixed bid contract may be the way to go. But if your project is long-term, you haven’t figured out all of the details, and your budget is more flexible, an hourly rate contract may be preferred.

How Do We Handle Different Contract Types?

At ClikGlobal, we value following a process that seeks to provide you with a great client experience, no matter which contract type you choose. In fact, our process helps us to circumvent the primary ‘cons’ associated with each contract type:

  • Develop an architecture for every project. - Because of their flexibility, hourly contracts can create uncertainty in terms of what your final project will look like. To prevent this, we always take the extra step of developing an architecture for your project, regardless of the contract type you choose. That way, you will know exactly what to expect from us upon your project’s completion.

  • Accommodate changes as the needs arise. - With a more highly structured architecture, fixed bid contracts can seem more restrictive. However, we understand that changing the direction of a project is sometimes necessary for it to meet your vision. Implementing changes with fixed bid contracts can take longer, but we value offering the flexibility needed to provide you with a great product.

  • Communicate throughout development. - With either contract type, you’ll want to ensure that your project turns out exactly as you envisioned while staying within budget. To ensure this happens, our project manager will hold weekly phone calls with you to discuss project updates. This will not only keep you in the loop but allow you to sit back and relax while we work on bringing your project to life.  

We understand that every business, and every project, has its own unique set of circumstances. That’s why we’re equipped with the knowledge and tools necessary to create the ideal solution, whatever situation your business may be presented with.

Contact us now.