Fixed Pricing Model in Software Outsourcing
When it comes to software outsourcing, the connection between the company and the service provider is considered a win-win situation. To avoid regrets later, both consult, review and select the best and most lucrative alternatives for themselves. Over the last ten years, Saigon Technology has advised hundreds of customers from countries such as the United States, Australia, Canada, Germany, and the Netherlands on software solutions. We introduce and recommend different software development outsourcing models to each client - based on their industry background and demands.
Fixed-price contracts can be highly effective for most clients seeking software development outsourcing for projects with a well-defined scope of work and consistent requirements, thanks to their stability and inherent nature. In addition, there are still three other pricing models for software that are also quite popular in the industry. Let us discover it in this article!
Four Common Models of Contract
Choosing the proper pricing plan for a project when working with a software engineering partner might be challenging. As a client, you should strike a balance between price, risk, and product quality, assuring that you obtain the greatest value for your business. Therefore, choosing a working model according to the type of contract is also very important.
Fixed Pricing Model
When the scope of work is properly specified and the needs are well known, fixed-price contracts are applied. Once the scope of work has been determined, the seller is required to provide a fixed price proposal for the agreed-upon scope of work.
For long-term projects that have been split into distinct phases, the fixed pricing model is the right choice because of its consistency and speed. When conducting a fixed-price contract, all risks related to project failure are transferred to the outside party. The consumer will not make a payment until the particular job/ phase has been completed. As a result, it is not an exaggeration to say that this is the most secure contract method for your budget.
To be more proactive, prepare your partners for flexible payment requirements. Depending on how each company works, some companies will charge a part of the contract fee based on the completion of specific project milestones. It is also part of the clearly and evenly divided periods. Because they will bear all the risks, they will want to ensure that they will always benefit with certainty. So, what if you are too strict about the conditions? You may end up costing your company extra money in the long run, as some vendors may include the cost of risk management in the price of the project.
Time & Materials Model
The phrase "time and materials" means the amount of time and construction supplies required by a contract administrator to complete a project. As a long-standing paradigm, the T&M model continues to perform well for various sorts of projects. Your partner bids on a project in T&M based on the precise needs, the scope of competence, and the projected volume of work.
Moreover, when the project is indefinite and it is impossible to accurately estimate the time and materials required, both parties will proceed to consider using the T&M contract. In this case, where things are still ambiguous, a fixed-price contract is not recommended as actual costs can significantly exceed the agreed-upon contract, and also the client's budget.
This approach is excellent if your engineering staff is skilled in sketching and predicting project concepts. Your partner spends less time repeating issues as a result of that comprehensive drawing stage, which shortens project completion timeframes and saves you money.
Incentive-based Pricing Concept
Developer bonuses are frequently included as a bonus in the T&M contracts discussed above as an add-on to more traditional models. In recognition of exceptional accomplishment, this bonus is frequently applied when the software development team exceeds the client's expectations and what was agreed upon in the contract in terms of performance.
These incentives appear as compensation for limitations in fixed-price or T&M models, to ensure the partner's motivations are always aligned with your own, balancing the interests of both parties.
Shared-risk Reward Pricing Concept
This approach, like the incentive-based one, will always offer a flat fee and be compensated in case of need. However, in some situations, customers and service providers often split the money to produce new items, allowing partners to have a steady source of income for a certain period.
Assigning great responsibility to the partner will help increase their dedication, and also encourage them to constantly strive to improve their work. Because the outcome of your partner's effort may be difficult to quantify, you must be ready to appreciate the benefits while enduring the drawbacks.
It is an important thing because it will play a key role in business success. A poor product will negatively affect psychology and business quality, money, and time in operating the company. Therefore, both the business side and the service provider need to sit down and have a thorough discussion through clear discussions to get the best coordination.
By reaching out to Saigon Technology, you will get a free consultation and quote for your project to choose the most suitable pricing models for software. Saigon Technology is ranked first among the top 15 software outsourcing firms in Asia, notably in Vietnam. Saigon Technology has employed approximately 400 of Vietnam's top developers for many years, working in programming languages such as Ruby on Rails, ReactJS, PHP, Python, C/ C++, Java, C#, ASP.NET, Angular.JS, NodeJS,.NET, and others. A trustworthy destination for outsourcing models!
- As a leading Vietnam software development company at Saigon Technology, we dedicate ourselves to your success by following our philosophy: Your success is our mission.