Approaches to Pricing Software Projects

If you’re working with an agency or contractor to build a software project, you’re likely wondering “How much will this cost?”

Some firms may give you an exact quote, like $100k. They feel confident based on past experience and have a solid understanding of the skills needed to complete the project.

Others may give a range for their quote, like $80k to $120k. These teams may be equally capable, just more cautious. Especially for a long-term project, they responsibly assume that the client’s business plan will somewhat pivot, which might impact original scope.

This is a figure caption example.

Fixed Cost Projects

A “Fixed Cost” (also known as “Flat Cost”) strategy is when the price for the project doesn’t change and is “fixed". This method is used when:

  • The requirements of the project are thoroughly documented with few unknowns.
  • The project is a relatively short-term engagement, generally less than two months.
  • The project has certain phases already completed, such as branding or UX / UI designs.
  • The founder or company is operating on a tight budget and preventing run-away costs upfront is critical.

Fixed Cost projects work well in these situations mainly because of the lack of variability in scope. If a project already has complete user stories for every persona and thorough designs, it’s easier for engineering teams to document and organize the work into Sprints and assign timelines.

“The primary advantage of a Time and Materials approach is that it offers a transparent way to price software and is generally cheaper for the client in the long run.”

Time and Materials

Another popular strategy is to price projects based on what’s commonly known as “Time and Materials.” In this model, teams are paid for the amount of time, the number of people, and the costs that make up the work. In software development, the “materials” are usually negligible outside of costs for items like high quality fonts, hosting contracts, licenses to third party APIs, and other digital purchases.

These engagements traditionally have a flexible and open-ended cost model. Most agencies will quote an approximate cost range, as it’s understood that the price may change once the project is underway.

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