Time and Material model
This is a settlement model between the customer and the contractor, where during product development the customer pays for the time multiplied by the number of people forming the development team (material).
Unlike the „fixed price”, this model is designed for projects where there is a lot of information about the goal of modifying and working on a particular piece of software, but the solution itself may evolve as the solution progresses. It may even be possible to change some primary assumptions during implementation.
When time and material model is relevant
Many custom software companies consistently use the Time and Material model because it is best suited to the Agile Software Development methodologies.
Due to the complexity of the projects and the varied customer approaches to this settlement method, additional mechanisms are in place to safeguard the interests of the client and the contractor. One of them is the maximum price guarantee, which determines the limit specified by the client’s budget. With this, the customer can rest assured from the beginning of the contract that its performance will not consume more than the assumed budget.
On the other hand, it allows the development team to recommend and suggest a better and faster implementation solution, which will allow the project to be executed faster and, consequently, within the assumed maximum budget.
Tima and material vs fixed price
In the case of the „fixed price” model, the mechanism described above cannot work, since the scope of work and the price are fixed from the beginning.
There are many different billing models in the market, but this one is seen by customers as the cheapest, especially for larger projects. This is because the contractor has no reason to add to his hourly rates the risk resulting from the fact that the initial estimation was made without the full knowledge of the actual scope of the project, while at the same time a team works more and more effectively with each sprint.
Software development using the „time and material” model is generally intended for customers who have people able to control and monitor the scope of work. Based on these assumptions, and based on working with clients in full transparency and teamwork, we at XSolve use this model with complete success.