The short answer
Use fixed price when the scope is clear and unlikely to change, such as a website or a well-specified first release. Use time and materials when the product will evolve as you learn, such as ongoing SaaS development. Many successful projects combine both: a fixed-price discovery phase and first release, then time and materials or a dedicated team for what comes next.
How fixed price works
You agree the scope, deliverables, timeline and total price before work starts. Payment is usually split into milestones, each released when working software is delivered and accepted.
Pros
- You know the total cost upfront, which makes budgeting and approvals easy.
- The agency carries the risk of underestimating.
- Clear milestones make progress easy to track.
Cons
- Every change goes through a change request, which adds friction and cost.
- Agencies add a contingency to cover their risk, so the price is often higher.
- A vague scope leads to arguments about what was included.
How time and materials works
You pay for the hours actually worked, at agreed rates, usually invoiced weekly or monthly. Priorities can change at any time.
Pros
- Full flexibility to change direction as you learn from users.
- No contingency built into the price.
- Work can start sooner, without a long specification phase.
Cons
- The total cost is not fixed, so you need to manage the budget actively.
- It requires trust and good visibility into what is being worked on.
The dedicated team model
With a dedicated team, you pay a monthly fee for one or more developers who work only on your product, as an extension of your own team. It suits companies with a long-term roadmap that want continuity without hiring locally. See how this works if you hire React developers or hire Node.js developers from us.
Side-by-side comparison
| Fixed price | Time and materials | Dedicated team | |
|---|---|---|---|
| Budget certainty | High | Medium | High per month |
| Flexibility | Low | High | High |
| Best for | Clear, stable scope | Evolving products | Long-term roadmaps |
| Your involvement | At milestones | Weekly | Daily or weekly |
The hybrid approach we recommend
- Fixed-price discovery: one to two weeks of scoping, wireframes and a written specification.
- Fixed-price first release: built against that specification, paid by milestone.
- Time and materials or a dedicated team for improvements after launch, with a monthly budget cap.
This gives you budget certainty when it matters most, and flexibility once real users start giving feedback.
Red flags in a software proposal
- A single total with no breakdown. You cannot tell what is included or compare quotes.
- No acceptance criteria. If "done" is not defined, every milestone becomes a negotiation.
- Large upfront payments. Paying most of the budget before seeing working software shifts all the risk to you.
- Vague ownership terms. Code, designs and accounts should clearly belong to you.
- No mention of testing, hosting or support. These costs appear later if they are not planned now.
- Unrealistically short timelines. Usually a sign the scope has not been properly understood.
Example: how a hybrid project runs
Here is how a typical hybrid engagement looks for a customer portal:
- Weeks 1 and 2, fixed price: discovery calls, user flows, wireframes and a written specification with a milestone plan.
- Weeks 3 to 10, fixed price per milestone: three milestones, such as accounts and roles, the core workflow, then reporting and launch. Each is paid on acceptance.
- After launch, monthly: a set number of development days per month for improvements and support, with unused priorities rolled into next month's plan.
You always know what the next payment buys, and you keep the freedom to change direction once customers start using the product.
Frequently asked questions
Which model is cheaper?
For a stable, well-defined scope, fixed price can be cheaper because there is no back-and-forth. For an evolving product, time and materials avoids paying for contingency and change requests, so it often costs less overall.
Can I switch models mid-project?
Yes. Many teams move from fixed price to time and materials or a dedicated team after the first release. Agree how that switch works in the original contract.
How do I control cost on time and materials?
Set a monthly budget cap, review a prioritised backlog every week or two, and ask for timesheets or a summary of work completed with every invoice.
Clauses every software contract should include
- Intellectual property: you own the code, designs and data on payment, and repositories and accounts are in your name.
- Acceptance criteria: how each milestone is tested and signed off.
- Change process: how changes are requested, estimated and approved.
- Payment schedule: tied to delivered, working software.
- Warranty period: bugs found shortly after launch are fixed at no extra cost.
- Confidentiality and data protection: an NDA and, where personal data is involved, a data processing agreement.
- Handover and exit: documentation and access transfer if you move to another team.
For more on vetting a partner, read how to choose a web development company and our guide to outsourcing web development to India. If you want a team that works this way, see our offshore development service or request a free quote.
