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Fixed vs. Hourly Rates: What To Choose For an App Development Project

If you have been reading our blog for a while, especially the App Solutions section, you know that we tend to provide a project cost estimate at the end of each post. Always with a disclaimer, however, that those are only rough estimates of what you can expect to pay for an app.

Wonderings what’s the deal with all that vagueness when it comes to discussing the costs of building an app?

No, there isn’t any secret global collusion among the developers to deliberately conceal the app development prices.

Here’s the truth – giving precisely accurate app development estimation is not even possible when the project requirements seem to be well-defined.

Michael Wolfie has illustrated this point with a great example:

“Let’s take a hike on the coast from San Francisco to Los Angeles to visit our friends in Newport Beach. The line is about 400 miles long; we can walk 4 miles per hour for 10 hours per day, so we’ll be there in 10 days. We call our friends and book dinner for next Sunday night when we will roll in triumphantly at 6 p.m.”

So that is your initial plan. But when you actually leave the house for the hike and look closer on the map, you realize that there is a gazillion of twists and turns on this coast and walking 40-mile a day will barely get you past Half Moon Bay. The entire trip is at least 500, not 400 miles.

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Then you end up walking at a slower pace because the terrain is tougher; oversleep on the other day and leave your campsite later. And a bunch of other unplanned events starts happening on your way to “chez friends”.

The same is true when it comes to app development.

While the initial product roadmap may sound pretty simple and straightforward, it’s hard to make realistic estimates before you actually start walking the walk (no matter how much prior experience you have within the industry).

Understanding The Different App Development Pricing Models

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When it comes to app development estimates, there are two most common pricing methods – fixed price vs. time & material cost. Or simply put – paying a fixed vs. hourly rate to the developers you hire.

The pressing question is, however, which one should you choose for your company’s project?

Obviously, each one has its advantages and disadvantages. To make an informed choice, let’s look into the exact differences between those two.

Time and Material Model

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While you may have a product roadmap in mind, in reality, your journey can take a lot of unexpected turns (just like that casual hike).

Here’s how things typically happen. After consulting with the developers and discussing the product specifications your original business perception starts fusing together with the tech expertise of the development team.

As a result, a deeper product vision is developed. Hence, you may want to change your original product requirements and implement the new ideas.

And the T&M model allows you to be more flexible with those changes even after the project has officially kicked-off. As a result, you receive the final solution, which fully meets your expectations, but may be above the original budget.

The time and material pricing model is usually used within the Agile approach to product development, which is more suitable for complex, full-feature products.

In this case, your product is developed interactively in the so-called “Sprints”. During each sprint a certain app module is delivered, discussed, tested and verified against the original business requirements. If certain new ideas pop up in the process, those could be implemented within the new sprint.

Key Points of Time and Material Pricing Model:

  • Approximate development timeline with an open deadline.
  • Final payment depends on the hours spent on your project.
  • Flexibility to add changes on the go.

Cases When You Should Consider the T&M Model:

  • When your project idea is still raw and you haven’t fully validated your app idea.
  • When you don’t have an exact project scope in mind.
  • When you can’t yet define the exact product specifications.
  • When you want more direct control over the development process and take the active part in project implementation.

Fixed Price Model

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Paying fixed fees means that you get confined within the pre-agreed project requirements and product specifications. Instead, however, you receive a clear complexion date to mark on your calendar and an exact sum due for payment.

Fixed pricing usually works best for simple app development projects e.g. a currency converter app built for one platform (iOS or Android) or product prototypes for startups.

This model also assumes having well-documented project requirements that do not change during the project implementation. So, if you come up with another idea later on, don’t get surprised if the developers won’t agree to implement it. It’s all in the contract.

Fixed pricing poses additional risks for the developers – as we all know that no matter how perfect the initial estimates are, something always goes wrong. Hence, the companies often add an additional financial security padding to the fixed-price project quote to avoid undercharging and losing profits.

Key Points of Fixed Price Model

  • Static budget.
  • Well-defined, non-modifiable project requirements.
  • Fixed timeline.
  • Higher chances of compromised quality.
  • You can end up paying more compared to an hourly-billed project.

Cases When You Should Consider The Fixed Model:

  • When you have a small, simple app development project in mind.
  • When you have crystal clear project requirements and specifications list.
  • When you need a product prototype or MVP.

The Alternative: Fixed Budget Model

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Yet, if your finances are rather limited indeed, and you really need to know how far that dollar can stretch, but don’t want to lose the quality, talk about the fixed budget model with the developers.

In that case, you’ll need to provide a budget estimate, your product priorities, along with all the project specifications you have at this point.

The developers can then suggest what exactly could be done for that price and what results you can expect. In this case, the app development agency will also take their hourly rates into account and calculate how much work could be done and where they can save you some cash without compromising the product quality.

A good team will help you choose the most important features to implement first and balance the whole project in a win-win situation. You pay the exact price you can afford, and the development company builds a great product without being confined with strict financial obligations.

Fixed vs. Hourly Rates Pros and Cons

Time & Material Fixed Price
Static Variable Quality Scope, cost & time
Flexible Variable Scope, cost & time Quality
Potential Risks The original budget may increase. The product quality may be compromised to fit the pre-defined budget
Potential Problems Increased project scope and requested changes may be too costly Your product expectations may not be met due to prearranged requirements list
Flexibility Big. Changes can be added continuously to the project. Little to none. New ideas don’t get included during the project development
Costs Fluctuating. But you pay only for the actual work done. Fixed. But you pay a security padding on top of developers’ rates.

Interested to learn more about app development costs? Check out: How Much Does It Cost To Develop an App?

Got an app idea and wondering how much will cost to implement? We’ll be happy to advise on the pricing if you reach out to us!

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