Clients almost always want fixed price. It feels safer: one number, one deliverable, no surprises. In practice fixed price is often the more expensive option and the one more likely to produce a bad relationship, and the reason is not dishonesty on either side. It is incentives.
What each model actually does
Fixed price
You agree a scope and a number. The agency carries the risk of the estimate being wrong.
Because they carry that risk, they price for it. A competent agency adds a contingency of twenty to forty percent to any fixed price, because they have been burned before. You pay that premium whether or not the risk materialises.
It also changes behaviour on both sides in ways nobody enjoys:
- Every change becomes a negotiation, because every change costs the agency margin.
- The agency is incentivised to interpret ambiguity narrowly, and you to interpret it broadly.
- When the project runs over, quality is the only variable left, so it is what gets cut.
Time and materials
You pay for the time spent at an agreed rate. You carry the risk of the estimate being wrong.
The incentives are better: changes are easy, the agency has no reason to argue about scope, and there is no hidden contingency in the price. The obvious risk is that a project with no cap can drift, and if nobody on your side is paying attention, it will.
When fixed price is genuinely right
- The scope is completely known. A brochure website with supplied content, a defined integration, a specific migration. If you can write the acceptance criteria today and they will not change, fixed price is fine and simpler.
- Small projects. Under a couple of months, the contingency premium is small and the administrative simplicity is worth it.
- You have no capacity to manage the work. If nobody on your side can review progress every week, fixed price transfers that burden, and you should pay the premium willingly.
- Procurement requires it. Common in government and large corporates. Then the question is how to write the scope well, not which model to use.
When time and materials is genuinely right
- The requirements will change, and you know it. Any new product, any MVP, anything where you will learn from users.
- Discovery is part of the work. If nobody can say precisely what should be built until some of it exists.
- You have someone who can steer. A product owner on your side who reviews weekly and decides what is next.
- Long running work. Maintenance, ongoing development, a team extension arrangement.
The hybrid that works for most projects
Almost every project we deliver well uses a version of this:
- A small fixed price discovery phase. Two to three weeks, a defined price. Output is wireframes, a technical approach, a scoped backlog and a realistic estimate. Cheap, and it removes most of the uncertainty that makes the rest expensive.
- Fixed price for the parts that are genuinely known. Design, the core screens, the defined integrations.
- Time and materials with a cap for the rest, reviewed at the end of each sprint.
The discovery phase is the important part. Most fixed price disasters happen because a number was committed before anyone understood the problem, and the cheapest way to fix that is to pay a small amount to understand it first.
How to protect yourself in each
In fixed price
- Write down what is out of scope, not just what is in.
- Agree the number of revision rounds.
- Tie payments to inspectable milestones, not to dates.
- Agree a change request process and a rate before you need it.
- Insist that QA is a line item. When fixed price projects run over, testing is what quietly disappears.
In time and materials
- Set a not to exceed cap per phase, revisited deliberately.
- Require weekly reporting: what was done, hours, what is next.
- Insist on working software every two weeks, not status documents.
- Keep the right to stop at the end of any sprint. This single term aligns everything.
- Name one decision maker on your side. Delay caused by your own slow answers is billed, and it is the largest avoidable cost in this model.
The honest summary
Fixed price buys you certainty about the invoice and costs you flexibility, a contingency premium, and a relationship where every conversation is a negotiation. Time and materials buys you flexibility and a better relationship, and requires you to pay attention.
If you cannot commit to reviewing the work every week, take fixed price and pay the premium. If you can, time and materials with a cap will almost always produce better software for less money.
Related reading before signing anything: how to choose a development partner and what a requirements document must contain.
Frequently asked questions
Is fixed price cheaper?
Usually not. It contains a risk premium of twenty to forty percent, and change requests during the project frequently exceed what time and materials would have cost.
What is a fair hourly rate in Pakistan?
Roughly 500 to 1,500 PKR for a freelancer, 1,500 to 3,500 for a small agency, and 3,000 to 8,000 for an established software house. The difference is process, QA and whether anyone answers in year two.
How do I stop a time and materials project from drifting?
A cap per phase, working software demonstrated every two weeks, and the right to stop at any sprint boundary. Those three terms remove most of the risk.
What about milestone based fixed price?
It is the most common practical compromise and it works well, provided each milestone has acceptance criteria written before work starts rather than argued about afterwards.
Ezitech works fixed price, time and materials, and hybrid depending on what the project actually needs. See how we scope work or talk to us about your project.
Related: What software actually costs in Pakistan — every Ezitech cost guide in one place.