Fixed Feature or Requirement vs Fixed Fee

Fixed Feature or Requirement

Now we’re stepping away from T&M (Time & Materials), aka billing for your time. You’re now billing for some specific amount of scope.

Because you’re billing for a specific result, rather than a block of time, you’re able to price a particular unit of scope based on the end benefit delivered to your client instead of whatever the going rate is for a developer or designer in front of a keyboard.

Pros:

• You can price according to value, not time.
• Your clients understand exactly how much a particular requirement will cost.
• If a particular feature only takes you a few hours of work, but is worth a significant amount of money to the client, your effective hourly rate for sitting in front of your keyboard skyrockets.

Cons:

• For a big project, this can require a lot of negotiation. Each and every part of a project needs to be approved and budgeted for.
• Scope changes can requirement additional negotiation and discussions. It’s not uncommon for a stakeholder to decide that something needs to change once he or she gets their hands on the work-in-progress feature or concept.

Fixed Fee

This is the most “productized” option available. I don’t pay Sony for the amount of R&D and manufacturing hours that went into the TV that’s on my wall (Time & Materials billing), nor do I buy the remote and the power cords separately (per requirement billing.) I pay for the TV, and in my head that TV has a certain amount of value to it.

Billing by the project can allow you to make a ridiculous ROI on your time, but it can also really hurt you if you work with a client who looks at your engagement as an all-you-can-eat buffet.

Pros:

• You charge for the value you produce.
• Your client will know exactly how much a project will cost, thus mitigating the risk of budget overflow with time-based billing. This might be enough to win over a reluctant client.
• You can peg the price based on the expected financial upside that a successful delivery of this project will bring to your client.
• The faster it gets done, the higher your effective hourly rate.

Cons:

• It can require you to map out every. single. aspect. of the project before you get started. Otherwise, you might assume something is simple and price accordingly, and then realize midway through that the requirement is significantly more complicated.
• It’s often beneficial for your clients to be able to change scope. When you’re billing a flat fee, you can come out as cold when you constantly respond with: “This is outside our Statement of Work (SOW). We’ll need to draft up an additional agreement and increase the cost of the project.”
• Less savvy freelancers can cave in to client demands, and spend more time on tweaks and eleventh hour changes. Each additional hour you spend on a fixed price project further reduces your hourly rate.