When deciding to cooperate with the selected eCommerce agency, you should first specify the contract type for the online store. There are two effective models that are the most popular – fixed price and time & materials. The appropriate selection of the settlement method is of fundamental importance for the satisfaction of both parties, which allows customers to apply payments tailored to the nature of the cooperation for a given project.
Fixed price or time & matersials – which contract type is better in IT project?
What are these methods and which are the best ones to choose so that the payment for the order is beneficial and the project turns out to be a success?
Contract in the fixed price model consists in establishing a fixed price of the project before its execution. It is a convenient option for projects where the client is able to accurately set his expectations for the online store before starting cooperation with the contractor. Requirements and functionalities are clearly defined, written down, most often presented on mock-ups and BPMN models. Projects created with the use of fixed price contact are based on a strictly defined schedule, which is well accepted by clients who have no experience in implementing IT projects. On the other hand, it excludes any modifications to the project, so that the scope and quality of the work performed differs from the level expected by the client.
The biggest advantage is the fact that by using this model, the client can define a fixed budget in advance, which is often a priority, especially in the case of smaller investments. This stable billing model is best used for simple and small IT projects where the risk of failure is low (e.g. simple websites, landing page). It should be remembered that the agreed amount of the project may be overstated by the contractor. If, during the construction of an online store, there is a need to make changes to the design, the eCommerce agency needs to protect itself against such a situation, for which it uses the surcharge on the price offered to the customer.
Advantages of fixed price:
- a precise price of the project that is easy to budget;
- a precisely defined schedule that specifies the exact date of the project execution;
- the outcome of the digital product development process is predictable;
- less involvement of the customer, no need to involve employees’ working time, because the scope of work is predetermined and is not subject to changes during the project implementation.
Disadvantages of the fixed price:
- little flexibility in the process of creating an online store;
- the need for detailed documentation, the acquisition of which may delay the start of the project;
- risk of overestimating or underestimating project costs, both on the part of the client and the contractor;
- the risk that the project will ultimately fail to meet customer requirements if the initial assumptions are incorrectly defined;
- the ordering party is required to have appropriate technical knowledge in order to correctly define the project assumptions;
- the inability to introduce changes during the project implementation, which definitely makes it difficult to adapt to the rapidly changing reality;
- the risk of the necessity to finalize the project within the set deadline at the expense of the unrealized scope or a reduction in the quality of its implementation.
Time & materials
It is a flexible model of cooperation that allows you to make changes while creating a project, most often as part of agile project management. It follows that the scope of the project may change along with the application of the client’s comments and instructions. This model consists in settling accounts with the eCommerce agency based on the exact number of hours worked and the tools used, most often at the end of a given billing period (e.g. at the end of the month). The actual cost of the investment is constantly updated, thanks to regular monitoring of the development process, which allows you to have full control over the costs. The client pays for the actually performed work without any additional security costs.
The time & materials model is mainly used in projects where the client is not able to precisely define the scope and specification of the project before the project starts. Then the time-consuming work is difficult to estimate. The client specifies the general outline of the online store project, while further requirements are specified during the project. Importantly, the work can start immediately, without preparing detailed specifications or documentation. This billing model is ideal for larger and more complex projects, which include eCommerce websites for both the B2B and B2C segments.
Adventages of time & materials:
- flexible approach to creating eCommerce websites;
- quick reaction to changes and corrections implementation;
- saving time based on the efficient start of work, without the need to specify assumptions and collecting documents or specifications;
- the ability to monitor and control the progress of work as well as immediate feedback from the contractor and client;
- no requirements for the client to have appropriate technical knowledge in order to correctly define the project assumptions;
- trouble-free modifications of the project scope on the part of the contracting authority, without the need for long negotiations with the contractor;
- control over the investment budget, base on the continuous monitoring of the time devoted by the contractor to the implementation of the project;
- an iterative approach to creating an eCommerce website that allows you to observe and implement changes on the part of the client at every stage of the project development process.
Disadventages of time & materials:
- the need for flexible planning of the investment budget on the client’s side;
- smooth work schedule based on the agile project management model;
- the need for constant communication between the client and the contractor, great commitment on the part of the client;
- the need to monitor the contractor’s time and costs by the client.
Fixed price or time & materials, which cooperation model to choose for an online store project?
The choice of the IT project contract method mainly depends on the customer’s attitude to the scope, quality and budget of the eCommerce project. Before choosing the contract method, it is important to carefully analyze the nature and size of the project and the expectations that the solution provided by the contractor should meet. A well-made decision will contribute to a high level of customer satisfaction, and the IT project will turn out to be a success.