The handbook for running a successful business has been rewritten in the last 20 years or so. Today, you have to compete in a global economy — and the operative word is “compete.” If you’re running a small to mid-sized business, you can’t outspend the major players, but you can remain competitive by making smart decisions to help you level the playing field. One way to do this is through outsourcing projects that are beyond the scope of your employees’ abilities or for which they just don’t have enough time — like your software development.
Maybe you’ve already made a few inquiries, or you’re planning to start the process of finding a vendor. You’ve heard that some software development firms use project-based pricing, and that others use retainer-based or Team-based pricing. You may not be sure of how the different pricing models work, or you may be wondering which is better. Truthfully, there is no hard-and-fast, one-size-fits-all answer. Whether you opt for team-based or project-based pricing depends on the circumstances that are specific to your project and your needs. However, by the time you’ve finished reading this, you’ll be in a position to make the decision yourself.
Projects versus Retainers
Every company has a slightly different wrinkle on how they define these terms, but the basics are typically the same. With a project-based price, you pay a set amount of money in exchange for a defined product. With a retainer-based or team-based price, you pay a fixed monthly fee that covers whatever product you need produced.
If that sounds confusing, consider an occupation that has used the concept of retainers for generations — attorney. Clients may choose to pay an attorney a retainer. The client sends the check before the attorney and the client have agreed on specifically what tasks the attorney is to perform. When the client needs the services of the attorney, he simply calls him up and explains what he needs done. The attorney performs the task, and typically charges his time against the retainer he has already received.
This same attorney, however, may also perform work on a project basis. Suppose you are planning to sign a business lease, but the document consists of multiple pages of extremely confusing legalese. You might want a lawyer to review the lease and translate the terms into language you can more easily understand. You don’t need his services beyond this one task. The attorney will give you a flat rate or charge you hourly for reviewing the lease and giving you his opinion.
Factors to Consider
There may be times when project-based pricing is the better solution for you, just as there are times when retainer-based pricing is preferable. When trying to decide, you should evaluate your project on the following points:
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How well defined are the deliverables? In other words, can you easily convey the exact product you want or the scope of the services you need?
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How long will it take for the project to be completed?
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Is the project to result in a one-time product, or will it be necessary to maintain or support the product on an ongoing basis?
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Does the vendor prioritize work for clients on retainer, while handling other clients’ projects on a first-come, first-served basis? If so, do you prefer or require that your needs receive priority?
When Project-Based Pricing is Better
Project-based pricing is normally preferable for small, one-time projects, such as creating a simple app. Projects should have the following features:
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Well-defined scope: From the very start, you know exactly what needs to be done, have a definite timeline, and you know just what you will handle in-house.
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Well-defined deliverables: Both you and the vendor understand the scope of the project, and neither of you has any questions regarding what tasks must be performed or what the end result will be.
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Short timeline: Realistically, vendors have difficulty giving an accurate project-based quote for projects that can’t be completed in less than six months or so.
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One-time job: Once the project is done, it’s done — there will be nothing more to be done.
Pros and Cons of Project-Based Pricing
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No long-term commitment is required.
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Your work may not be given a priority.
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Because the scope and deliverables are clearly defined in advance, changes may be costly or impossible.
When Team-Based Pricing is Better
Unless you are planning to be an unsuccessful business, you’re going to have ongoing needs. Technology changes rapidly, and your software is likely to need periodic upgrades. For example, not too many years ago, companies thought that once their website was built, it should permanently fill their needs for a web presence. However, when the explosion in mobile devices hit, many companies found that the site needed to be mobilized.
If any of the following are true, you will probably be better served by choosing team-based pricing:
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The scope is not well defined: You aren’t sure just what you can handle in-house, or you want to try out multiple ideas.
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The services needed are extremely varied: Your project will require the special skills of different types of developers at different stages of the project. Software testers, technical writers, graphic artists, and others may also be required.
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The project has a long timeline: The project itself is going to take more than six months to complete, or you want to make sure that the vendor will continue to support the software on an as-needed basis.
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The project doesn’t have a definite end: You aren’t sure just what your final destination will be. Perhaps you want to try more than one solution, or you plan to expand the scope of your project if another condition occurs.
Pros and Cons of Team-Based Pricing
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Flexibility: Project specifications can be changed more easily and for less (sometimes no) cost.
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Commitment: When you sign the contract, you are committing to pay a monthly fee.
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Prioritization: Your needs will be placed ahead of clients with project-based pricing.
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Familiarity: The vendor will gain an understanding of how your business operates and what your needs are. You won’t need to explain everything every time you need a new project handled.
Conclusion
Only you can decide whether retainer-based or project-based pricing is better for your particular situation. However, unless you have a very simple, one-time project that can be completed quickly, you will probably be happier in the long-term with retainer-based or Team-based pricing.
At delaPlex Software, we understand the need and offer the flexibility to match every project to the budget and process needed for a successful completion. Our employees are a diverse group possessing a wide range of skills and expertise. Contact us today to learn how we can help you achieve your organization's goals.
