When you commission software, the commercial model shapes the whole project: how scope is managed, how risk is shared and how you pay. The two main models are fixed price and time and materials (T&M).
Fixed price
The developer agrees to deliver a defined scope for a fixed amount.
Advantages
- Budget certainty.
- Simple approval for finance and management.
- Developer carries the risk of underestimating effort.
Disadvantages
- Requires clear, detailed scope upfront.
- Changes need formal change requests and extra cost.
- Developers may add risk margin to the price.
Best for: well-defined projects such as websites, portals with clear requirements, or a defined phase of a larger system.
Time and materials
You pay for the actual time spent, usually at agreed daily or hourly rates.
Advantages
- Flexibility to change priorities as you learn.
- No need to define everything at the start.
- You pay only for work done.
Disadvantages
- Less budget certainty.
- Requires close involvement and trust.
- Needs good tracking and reporting.
Best for: evolving products, ongoing improvement work and research-heavy projects such as AI experiments.
Comparison
| Factor | Fixed price | Time and materials |
|---|---|---|
| Budget certainty | High | Lower |
| Flexibility | Lower | High |
| Upfront scoping effort | High | Lower |
| Client involvement | Moderate | High |
| Risk on overrun | Developer | Client |
Hybrid models that work well
- Fixed-price discovery, then fixed-price delivery: a short paid discovery phase produces clear scope and designs, then delivery is quoted at a fixed price.
- Capped T&M: time and materials with a maximum budget per phase.
- Fixed price per sprint: a fixed amount for each sprint with flexible priorities.
How to protect yourself under either model
- Define acceptance criteria.
- Insist on regular demos.
- Agree how changes are handled.
- Keep ownership of code and accounts.
- Get weekly progress reports.
Our default is a fixed written quote after a free scoping call, with clear change handling. Talk to our software development team, or read the custom software buyer's guide.