Fixed pricing is not just a pricing model for custom application development; it is a clear commitment to the project process and all stakeholders. The well-known triangular constraints of project management (scope, time, and cost) are all fixed. You will not go over the budget, and that will be the most favorable outcome for both parties. First, you need to define a scope. The client presents the product requirements. The supplier calculates the price and timeframe. This makes it easier for project managers to control the app development process. The supplier bears more risk, and the team maximizes the accuracy of the estimates.
To understand how to make a fixed-price custom project successful, let’s take a closer look at the app product development process with specific details related to this contract type.
How are fixed-price projects run?
1. Fixed-price projects do not start without fully documented requirements.
- Product specification detailed requirements: All product specification requirements need to be properly documented before development begins
- UI/UX Design – The mock-up of the app product is ready for implementation.
- Acceptance Criteria: Define what is to be finalized. Acceptance criteria include a checklist of actions with expected results, selected test devices, supported browser and platform versions, and so on.
These requirements must be created by the clients or elaborated, clarified, and approved by the supplier. Once the scope is finalized, then UI/UX design and development can be estimated. Clients and contractors need to know exactly what to look for and agree on it.
2. Fixed-price projects typically include a fixed scope divided into milestones showing the type of collaboration:
- Interim results
- A work and payment schedule
- Possible risks and their solutions
- Acceptance criteria
- Work procedures for change requests
3. Advance payment.
In general, you pay 50% in the start. Additional charges will make upon the achievement of each milestone.
4. Implemented Functionality
The result of each milestone is an intermediate product with implemented functionality. They are provided to the customer to check progress.
5. Change Requests
Changes to requirements are controlled by change requests, which are additional contracts created by the project manager. Since changes in the development process affect the scope and app development costs, the team will re-estimate and include them in the change request. The clients will then be either approved or rejected, and the development will proceed according to the initial approval.
6. Alpha Build
Another milestone is an alpha build with all the features implemented. The team verifies that the outcome is working perfectly on the test server.
7. Refinement & Polish
The last milestone is refinement and polish. The beta (final version) is complete. The outcome is to keep the clients’ actual work environment on the production server.
8. Acceptance Period
After providing the final build to the clients, the project enters the acceptance period. During this period, the clients will check the product by approved acceptance criteria and provide feedback to the contractor. The acceptance period is typically five days. If there is a bug in the approved test equipment or a mismatch with the checklist is found, it will be fixed by the contractor and the clients will not have to pay any additional costs. The time taken for these corrections is not included in the acceptance period.
9. Final Payment
When the testing period is completed, the contractor receives the final payment, sends the source code to the clients, receives feedback, and finalizes the project. At this stage, the custom product is deployed to the application store and is provided as a stand-alone operation at the demand of clients by standard contract pricing.
What are the risks of developing apps at a fixed price?
- Scope-related risks are borne by the clients. This risk is solved by the ‘Change Requests’ and affects the cost.
- You are responsible for the risks associated with third-party services. Third-party services must operate under certain approved conditions as defined by the client’s product requirements. The contractor must recognize them from the start.
- Human risk factors are assumed by the contractor. These are not the costs of app development, but the schedule. If the developer is unable to perform the business, we will alert the clients and select an alternative.
- You are responsible for the risks associated with third-party libraries, services, APIs, SDKs, and other tools that you choose to develop. They do not affect cost.
What’s the next step?
After delivery, you will receive feedback from users, bug reports, new feature suggestions, etc. Your understanding of product concepts and features may change. It can also change with changes in business and technology, so clients have two choices. You can either continue iterative app evolution or hire a team for minor updates and fixes (typically 12-24 hours per month). The price is equivalent to the standard hourly wage of the contractor.
The main problem with the fixed app development price is that the clients are almost inflexible. Flexibility is needed for medium and large projects in which business and technology conditions are constantly changing. In opposition, fixed costs are proper for short and smaller-sized plans that need an average of three months, many documented terms, and little backend thought. Most importantly, the fixed plan does not allow for change and flexibility, allowing you to react immediately to any change in the market. It does not make it easy to maintain product relevance. If a particular project is suitable for a flexible price system in terms of both requirements and costs, this is a better option for clients. The lack of budget changes during the project period means that software developers must anticipate and prepare for all possibilities. In other words, the price of a fixed price model must include reserves to avoid any risk.
So which pricing model should be used for custom app development? Agile app outsourcing companies tend to avoid fixed-price projects. This is because there is no changing weather in the world of custom app development. In the world of custom app development, there is no weather without change. If a custom product needs to evolve, iterative development is the preferred solution. You can respond fast because you do not need change requests or long re-quotes.
Sunvera Software develops next-level software applications from start-to-finish. Schedule a free 30-minute call with us to discuss your business, or you can give us a call at (949) 284-6300.