The two classic models
In a fixed price contract, you agree on a scope and a total price before work starts. The agency carries the risk of the work taking longer. In time and materials, you pay for the hours actually worked, usually against an estimate. You carry the risk, but you can change direction at any moment.
Both models are honest. Both fail in predictable ways.
Where fixed price fails
- The scope must be complete before anyone has built anything, which is rarely possible for new products.
- To protect themselves, agencies add a risk margin, so you often pay for overruns that never happen.
- Every change becomes a negotiation, because it threatens the fixed total.
- Incentives drift: the agency gains by delivering the minimum that satisfies the written scope.
- Large prepayments are common, so if the relationship goes wrong, you have already paid for work you may never get.
Where time and materials fails
- You don't know the total until the end, which makes budgeting and fundraising hard.
- Progress is measured in hours spent, not in results delivered.
- Without strong product leadership on your side, the backlog grows and the money goes with it.
- It is hard to compare agencies, because a lower rate tells you nothing about efficiency.
The hybrid model with a fixed price per stage
Most buyers want two things at once: a known price for the next commitment, and freedom to change course as they learn. Fixed price per stage gives you both.
- Start with a short, paid Discovery stage that turns your idea into a detailed scope.
- Fix the price of each following stage, such as design, build sprints and launch, based on that scope.
- Pay each stage before it starts, never the whole project.
- Review the result of each stage before you accept the next one.
- Price changes at a known hourly rate and add them to the next stage.
This is how we work. Discovery costs 10 percent of the estimate with a minimum of $1,900, changes are priced at $89 per hour of team time, and you can stop after any stage and keep what you paid for. Details are on our software development pricing page.
How to decide which model fits your project
- Your scope is small and well understood, such as a website or a single integration: one fixed price is fine.
- You are building something new and expect to learn as you go: fixed price per stage.
- You already have a product, a technical lead and a backlog: time and materials through a dedicated developer or staff augmentation works well.
- You cannot describe the product yet: pay for Discovery alone and decide after.
Questions to ask any agency about payment
- What exactly does each payment buy, in writing
- How much do you need up front, and for what
- How are changes priced, and who approves them
- When do the rights to the code transfer to us
- Can we stop after a milestone, and what do we keep
- How do you report progress between payments
If an agency asks for most of the budget up front, or cannot tell you what a change would cost before you request it, that is a warning sign regardless of the model.
The role of a transparent estimate
Payment models only work when both sides agree on what is being built. That starts with an estimate you can read: base hours, hours per feature, overheads and the rate. If you know the cost of each feature, you can trade features against budget yourself instead of negotiating. Our cost to develop an app page shows the full model.
Try it on your project
Describe your project and get a range, a stage plan and the price of Discovery in about a minute, before you share an email.