„Software House” is an umbrella term for an IT company which produces software solution as a final product. This „software” can be a website, a mobile application, e-commerce platform and alike. Given that the software product can be anything the Customer would like, prices can vary. In this article, we’re going to outline various compensation methods for a typical Software House (not only us!)
1. Fixed Price
This is by far the most popular method. In a fixed-price contract, the Customer closely works with a Software House before the project work begins. The goal is to provide the Software House with as much information as possible in order for the Software House to make a highly specific and realistic project cost estimation.
Pros and Cons
- If the Software House makes a highly realistic cost estimation, the Customer will know the exact project cost ahead of time. This especially helps with proper budgeting or when comparing prices across different Software Houses for the same project.
- Not the best payment method for large-scale or highly integration-oriented projects. Sometimes an integration with an external system can take much longer than expected due to unforeseen reasons, resulting in the project running overtime (and consequently over-budget).
2. Time & Materials
In this model, the Customer only pays for the actual amount of work that’s already completed. The progress of the work is closely monitored by the Customer and payments go out in increments, or in one, lump sum.
Pros and Cons
- Usually a cheaper option for the Customer. This stems from the fact that in a Fixed Price model, a Software House will often provide a slightly higher estimation, in order to account for a possible overtime.
- A good option for those who do not yet know every aspect of their project. As a Software House progresses with their work, a Customer can pivot the project and set priorities according to his/her wish.
- Not every Software House is willing to work in such manner. Sometimes a down-payment will be required.
3. Monthly Fee
In this method a Customer and a Software House agree on a certain amount of work-hours to be done in exchange for a fixed fee.
Pros and Cons
- Best suited for those who already have a website, portal or an e-commerce site and need support, maintenance or updates.
- Not the best method for those who want to build a new project, as the speed of project development will be limited by the work-hours outlined in the contract.
Summary- how to settle accounts with software house?
If you don’t know which model to choose, perhaps it’s best to think about your project scope and size. Generally, Clients with large projects prefer the Time & Materials method, as it allows them to set development priorities. Moreover, the payment is done incrementally after work is completed, rather than ahead of time.
For small and medium-sized projects, most Customers prefer the Fixed Price contract. This allows them to have a fixed budget and have a peace of mind that with a proper estimate, there will be no surprises financially-wise. In this method, the Customer pays in advance and receives a final product according to his/her specifications. No further work is required.
The Monthly Fee contract is best suited for already existing projects, such as making website updates, providing help and support to an existing site, or making gradual improvements/expanding functionality. With this contract, the Customer can be assured that their website, portal or e-commerce site will always remain online and taken care of.