A story about different payment methods told by a PR Specialist and a CEO

This is typically used for projects that don’t last more than a month. Or projects with clients from the 2000s.

This is used for projects that last 2 months or longer and involve paying for the man-hours of the employees involved.

This is used for long-term projects that require constant development. That is, you plan a constant workload in the form of development and support.

I constantly face the need to talk about the pros and cons of payment options. But most often I have to prove that Fixed Price is a complete illusion. So I decided to look at all the options using real-life examples.

Obviously, a lot of people like this payment option because you know in advance how much you’re going to spend. You’re sure you won’t exceed the budget. Or that you won’t get billed for any extra hours of work.

Yes, and you have to fight those beliefs. Because for us, as a contractor, there is only one scenario where Fixed Price is disadvantageous, if we have not studied the ToR and did not notice any annexes. And for the client, there are three scenarios.

A manager, from experience, tried to take into account any nuances (even those with a 0.01% probability) and put up a sum of x10. Although to calculate everything over 100 hours is a bad shot. And compare the ‘inherent risks’ of 30% at 100 hours and 30% at 600 hours.

From the beginning, a client did not account for everything (and he certainly did not account for everything), and he will face additional expenses. After all, Fixed Price means fixed tasks. Therefore, the result is a larger price than the original.

Work is built clearly according to ToR (no shifts), each new stage starts after the previous one. Have you come up with some perks in the process? Expect additional costs, new deadlines, new document approvals, etc.

You can control both the upper budget threshold and some specific deadlines. That is, the client limits the amount he or she is willing to spend on the project, and the manager keeps track of how the money is spent. Or, for example, one of our customers wants a project to be finished by December, and at the same time he or she throws all sorts of ideas, the manager evaluates the timing of their implementation and advises what is better to abandon in order to meet the deadline.

Okay, if it’s not a Fixed Price, that’s probably the coolest option, right? For us, it’s a guarantee of constant team load and the absence of a bench. For the client, it means full attention to the project from the developers and management. They work only on his/her tasks, they can change priorities during the work, and show results on sprints. They are interested in the result, so they can deviate from the ToR to offer other mechanics and approaches.

On the whole, you’re right. But from our practice, people involved in one project only burn out. We had a case where after a year of working with a cool, awesome and large-scale client, the team got tired. They wanted new experiences, fresh tasks, and in general to shake off the routine. That is why we had to change the guys and delegate the tasks. But these man-hours fell on our shoulders. So the client was not affected in any way.

If with Fixed Price and Retainer clients don’t worry about being cheated, the T&M format seems the most vulnerable. What if they are cheated? What if they bill more hours? What if they won’t do anything?

That’s definitely true. Plus lawyers can also cut in and interfere with the process. They also don’t understand what T&M is and how to settle disputes. A lot of paperwork begins, which comes down to trying to describe everything in the ToR from the start, to lay down the risks. And we still go back to Fixed Price. The lawyers are happy. But what they really don’t get is that we’re not going to work at a loss. So, if anything, the client will have to pay extra.

If your task is a landing page, promo website or any other clear and simple product, choose Fixed Price. Especially if there is a design, texts, and thought-out structure. For example, we do not accept such tasks for work, so this form of cooperation is not considered. Especially after one case that I described on my Linkedin page.

If you are implementing something new, for example, automating the work of sales managers by creating personal accounts, or converting a loyalty program into the application format, it is better to choose T&M. This is more effective both in terms of budget and development.

If you are planning to build a global infrastructure, in the basis of which you must think through the logistics, integrate web, mobile, and then fine-tune the services for internal use, it is better to resort to Dedicated Teams. Because they will be involved in the project from the start and will be able to consider all the nuances from the start. It is important to also consider website maintenance, enabling you to make informed decisions on how to support your website in the future.