It’s hard to admit that we’ve been building websites and custom apps for our clients for over 15 years now. And while we’re still looking for the client with an unlimited budget (let us know if you’re interested!)—we know that the reality is that with every engagement, we have to be able to address the big question: “How much does it cost to build an app?”
Custom software can be a large investment with projects running from several months to several years and budgets on our projects have ranged from tens of thousands of dollars to over $1,000,000.
When it comes to pricing on software development projects, there are two common approaches: Fixed Fee and Time and Materials (T&M).
Fixed Fee
A Fixed Fee contract means the client pays a fixed amount for a defined scope of work, feature, or deliverable. To work well, all of the work effort needs to be very clearly defined. The challenge is that this approach tends to be very inflexible—and that is problematic when we recognize that great ideas and solutions tend to surface at many times throughout a project’s lifecycle and we want to embrace great ideas.
Software developers carry the risk for the project in Fixed Fee contracts and may feel pressure to cut corners in order to meet deadlines for deliverables within the constraint of the contract—or—more likely, the developer may over-inflate the true cost of the work in order to mitigate their risk.
Time and Materials
Time and Materials contracts mean the client pays a fee based on how much time and materials are used. T&M contracts are more flexible but can be risky for the client if no constraints exist, and the project can become expensive with little value delivered.
Is there another way?
At Cultivate, we aim to work with our clients to find an approach to pricing that best fits their needs and comfort level. We advocate for a variation of the T&M approach that has a Not To Exceed limit, giving both control and flexibility.
In this approach, we work with our clients through our Product Strategy + Planning process where we apply various estimation techniques (including PERT), to arrive at a recommended budget. This budget is based on an hourly rate for each team member on the project given the estimated period of time to deliver on the project plan. We’re open and transparent with our clients about our budget estimates and where uncertainties may exist. We keep a record of the budget estimates throughout the life of a project.
This approach combines the benefits of both Fixed Fee and Time and Materials contracts, allowing for flexibility in scope while setting real constraints on time and cost and it allows for transparency and open communication between Cultivate and our client. It helps ensure the project stays within budget and progresses smoothly; accommodating changes where necessary.
As the project develops, the team tracks hours worked and features completed, meeting weekly with the client to discuss project status and budget. This approach also allows for changes in scope and molding the project to take advantage of new information, resulting in a better product that meets user needs.