How to Choose the Right Web Development Pricing Model?
It isn’t a big deal to calculate the price of some services that we are accustomed to, e.g. cleaning, insurance, decorating works, etc. Work is done, money is paid, but it’s not that simple with software development services. Large-scale IT projects can last for years, and it’s hardly possible to figure out the final price right from the start.
If you are new to software development, various pricing models offered by providers may seem confusing. How to decide which “story” is yours? The choice mainly depends on a budget, project scope, and time limits. With these aspects defined, picking up the appropriate pricing strategy will be a piece of cake.
The most common types of pricing models:
- Time-and-materials or hourly pricing model
If you are planning a long-term project with dynamic requirements and the unknown project scale, an hourly pricing model is the best choice for you. It’s one of the simplest models that provide maximum flexibility and allow you to change the project scope and specialists’ workload.
You will have to oblige your developers with thorough time tracking and rigorous documenting. Close communication with your software provider is crucially important as well. This way time-and-materials pricing model works for your company, but not against it.
This pricing approach is very convenient for IT services providers and their clients. Nevertheless, it has its flaws. Overall project time is unlimited, which means that deadline turns into a faint horizon line. So, in case you can include extra working hours into your budget, time-and-materials pricing will suit you. Interacting with your software provider, you can avoid the above-mentioned drawback.
- Project-based or fixed-price model
Managers can breathe a sigh of relief: fixed-priced model facilitates their work a lot. Since this pricing approach makes project terms less flexible, little involvement and control of managers are required. They don’t have to ensure rigorous reporting like with hourly pricing, because payments are based not on time, but the final result of work.
Fixed-price model is not a good fit for large-scale projects when the exact time and resources spent are hard to define right from the start. An amount of work might appear to be greater than it seemed in the beginning. Software providers lose in this case because they have to do more than have been prepaid. Customers, in their turn, bear responsibility for any changes they would like to make to the project after the launch.
However, this pricing approach produces profit for provider companies specializing in similar small-scale jobs that are easier to estimate e.g. WordPress websites for restaurants, logo design or CEO customization.
Some less popular pricing approaches:
- Retainer pricing
This approach is based on prepaid time or the amount of work done. There are two types of time-based retainers: clients “lose” the unused prepaid hours at the end of each month or the untapped time is reassigned to the next month. This pricing model can also be based on value. The client might specify the required result and make monthly payments for the pre-specified outcome of work, regardless of hours spent on it.
- Package-based pricing
Package–based pricing means fixed costs for a certain list (a package) of web development services. In this case, software development company’s catalog is available for everybody on its website. This pricing approach is not suitable for big projects when the final price is hard to estimate in the beginning. But customers enjoy when they know the costs immediately and apply for the services more willingly. Psychologists give a clear explanation to such behavior. The absence of prices on a website makes some customers think that a provider might be too expensive for them, and as a result, they don’t even try to contact that company.
- Value pricing model
Value pricing is based on сlient’s financial capabilities and software provider’s experience. True experts in the software development field have every right to ask for better pay than newbies. Besides, if a provider offers high-quality services, the higher cost is justified by the final quality of the product. Anyway, it’s up to you to investigate, think, and decide, whether the price that your software provider suggests is acceptable and reasonable.
- Performance pricing model
You pay for the performance of an application. This model resembles value pricing a lot, but it is not exactly the same, on closer look. Software development companies are paid based on achieving certain client goals. Whereas value pricing is based on the preset characteristics or features that a final version of a web app should have, this model emphasizes performance. Lower revenue and efficiency can change the final price of the project or result in some extra work to be done. It’s not a surprise that software vendors are not big fans of performance pricing.
With the right pricing model chosen, you can focus on cutting down the expenses. It’s time to learn some tips that will help lower the web application cost.
How to make your project more cost-effective:
- Leave an open review of software provider’s services. Most of the customers don’t usually advertise applying for software development, a written feedback is worth its weight in gold for IT companies. If you are ready to “come in from the cold” and make your opinion available for everybody, you may count on a substantial discount from the provider’s side.
- Ask for extra QA. The importance of quality assurance is often underestimated by customers. They try to avoid this kind of services thinking that QA adds unnecessary expenses to the project cost. But the reality is that qualified QA services result in fewer bugs and, as a consequence, in lower support costs.
- Allow making the project portfolio public. A company’s portfolio is the easiest way for software vendors to show their achievements and professionalism. If you allow your software development company to include your project case into their portfolio, this is likely to bring you the desired discount.