Running a Digital Development Agency Part 1: The Pros and Cons of Fixed-Price Projects

Over the past six years that our development agency has been in business we’ve taken many different approaches to close leads as quickly and efficiently as possible. None of the tactics we’ve tried have been quite as successful as scoping fixed-priced projects for clients.

Many agencies seem to shy away from this pricing strategy as it’s much riskier than billing clients an hourly rate but it can significantly assist with developing client confidence in your ability and can open doors to more projects and retainer-style work. This is an especially great strategy for young agencies that are starting out and in the early growth stages as you need to build trust with inbound leads.

Even though it can be a great strategy and will help you close projects it’s very important to be careful, it’s essential to have an experienced team member on board that knows what they’re doing when it comes to scoping a project accurately and seeing the project through to completion on budget.

Here’s a good way to understand the risks and benefits of scoping fixed-price projects before moving forward with this pricing method:

Pros:

Easier to close projects

When you create a fixed-priced scope, you take the financial risk off of your client and put the burden on your agency. Simply, being explicit about what you will do and how much you’ll do it for makes it easier for them to say yes or no.

No surprises for the client

When you’re quoting a fixed-price project your client will rest assured knowing they won’t get a call from you halfway through the project asking for more budget because you misquoted how many hours or how much effort a part of the project will take. It becomes your responsibility to know these things up front and relay them to the client with confidence.

Cons:

Clients don’t always articulate all their needs up front

You have years of experience building websites and apps, often your clients may not. Consequently, clients may have a difficult time articulating what they need or what’s involved in creating it. Success in using fixed-price quotes highly depends on your ability to listen to them, ask the right questions, and draft a clear scope of work that gets them from the beginning to the final stage of the project.

Some projects won’t fit this model

A good skill to add to your toolbox is to know which projects won’t fit this model from the get go as they may have changing needs. This happens more often with larger projects (say a large eCommerce build). Do not offer the client a fixed-price scope if you won’t be able to deliver.

It’s easy to go over budget

Fixed-price projects are most attractive to clients because you’ve removed one of the biggest unknowns for them. At the same time, it’s impossible to be 100 percent accurate with how work intensive a project will be or what speed bumps you might run into. When you make a mistake and underestimate it puts you in a bad position to go back and ask for more. This was why they wanted a fixed-price contract, right? This only leaves you one unappealing option: dipping into your own pocket.

Have any questions about the pros and cons of fixed-price projects? Reach out to us on twitter @BuildRX and, while you’re at it, take a look at BuildRX.com.

Also, read part two here: https://medium.com/running-a-digital-development-agency/running-a-digital-development-agency-part-2-how-to-estimate-fixed-price-projects-effectively-fc8fbbcf498e