4 ms·

Fixed fee vs hourly billing also entail different risks. Clients willing to pay a fixed fee want you to assume the risk of cost overruns. You need to price this

Fixed fee vs hourly billing also entail different risks. Clients willing to pay a fixed fee want you to assume the risk of cost overruns. You need to price this risk into your fixed fee in the form of additional margin. So, if you estimate a job will take 100 hours, your hourly costs are 100€ and you calculate a 10% profit margin and a 10% risk margin, your quote would be for €12,000. If you are good, and you always manage to deliver within your time budget, the risk premium compensates you for the risk you are assuming. Fixed price contracts require stringent change management. I recommend that even zero-sum changes go through a formal change process, so that your customer understands the difference between a fixed price and an hourly rate contract. There is more potential conflict with a fixed price contract. There will be disagreements whether a particular item is included in the scope. This means you need to be more precise when defining the work. The items you mentioned (documentation, etc.) have no bearing on whether you are quoting fixed price vs hourly rates. If the customer wants these things, they should be included in the paid scope of the contract. Your focus should always be on delivering software that delights the customer, because only then will you get repeat work.

mswen 5y ago
Some great points AlDante2. There is also the issue of how open-ended the engagement is versus clear confined specification. I work with clients on an hourly basis because of the open-ended nature of the work I generally do. It is almost impossible to write a decent spec ahead of time. I do a weekly check-in with demos and discussion so they know what I am working on, how much progress is being made and with weekly check-ins they don't have any surprises at the end of the month when I bill them. Recently, I added a new client where I was much faster than the estimated hours for the initial scope of work. If I had been fixed bid with them I would have made a lot more per hour. As it is they are using the remainder of the hours in the original estimate for some other work and it sounds like there will likely be more in the pipeline. Truthfully, I would rather have them turn into a longer-term client in a high trust relationship than to have maximized profit on the first project.

mswen 5y ago

Some great points AlDante2. There is also the issue of how open-ended the engagement is versus clear confined specification. I work with clients on an hourly basis because of the open-ended nature of the work I generally do. It is almost impossible to write a decent spec ahead of time. I do a weekly check-in with demos and discussion so they know what I am working on, how much progress is being made and with weekly check-ins they don't have any surprises at the end of the month when I bill them. Recently, I added a new client where I was much faster than the estimated hours for the initial scope of work. If I had been fixed bid with them I would have made a lot more per hour. As it is they are using the remainder of the hours in the original estimate for some other work and it sounds like there will likely be more in the pipeline. Truthfully, I would rather have them turn into a longer-term client in a high trust relationship than to have maximized profit on the first project.