Software development pricing models: which one is the right one for you?

There are numerous pricing strategies unique to software development, each with its own pros and cons. It’s important for any software development company to compare these strategies carefully to find the right fit. This can make all the difference when it comes to being paid in a timely manner and meeting all client expectations – or derailing the project as you go back to negotiations. We’ll touch on four of the main software development pricing models below. 

What are the different software development pricing models?

With dozens of SaaS pricing models out there, it’s helpful to understand what exactly they cover and how they’re calculated. Here are four of the most common software development pricing models you’re likely to come across.

1. Fixed-price software development pricing model

This is one of the most common pricing models used in software development. It specifies all business requirements and technical details up front, including the product’s release date and any associated deadlines along the way. This ensures your team works according to a predetermined timeline and budget.

Pros of the fixed-price model:

• It eliminates all uncertainty

• It clearly outlines expectations between service provider and customer

• It sets out specific deadlines for organised project management

Cons of the fixed-price model:

• Any deviations to the plan can lead to delayed product release

• The development team must focus on meeting targets, potentially sacrificing quality

• It’s restrictive in scope, reducing the ability to include value-adding features along the way

Generally, this type of model is best when you have a limited budget and time, are planning in the short term, and already have your technical documents ready to go.

2. Time and material software development pricing model

With the time and material pricing model, you’ll still work to an estimated budget and timeline. However, there is greater flexibility within this framework in comparison to the fixed-price model. Although you’re working to an estimate, you’ll charge the client for the actual number of billable hours spent on the project. Similarly, you can charge for any additional materials used even if they weren’t included in the initial estimate.

Pros of the time and material model:

• It encourages greater agility and creativity

• It allows for wider flexibility as you work on your product

• It still requires a budget and timeline to keep your team on track

Cons of the time and material model:

• There’s some ambiguity involved in the budget, which can impact the time-to-market

• To complete the project, continuous project monitoring is required which can involve extra admin

This type of model is best when you have a general idea of what’s involved with project management but want added flexibility. It’s best for larger or more long-term projects requiring monitoring at each stage.

3. Mixed pricing software development pricing model

The third option combines the best aspects of both the fixed-price and time and material models. With a mixed pricing model, you’ll still use strict deadlines but with some element of flexibility involved. The project’s scope can be altered as needed provided the final output is realised.

Pros of the mixed pricing model:

• You’ll still meet your required deadlines with on-time delivery

• There’s potential to change requirements along the way

• You can manage additional costs or revisions

Cons of the mixed pricing model:

• Due to revisions, there’s always a risk that deadlines won’t be met

• At times there can be a delay in the time-to-market

This pricing model is best for short-term or medium-term projects, when you know when you want to launch the project but want some flexibility for changes along the way. You’ll be billed for the number of hours completed.

4. Dedicated team software development pricing model

The fourth and final option is the dedicated team pricing model. This gives the maximum level of control over the project by giving you the chance to interview and select all team members.

Pros of the dedicated team pricing model:

• You handpick your software development team

• You retain greater control over the project and its success

Cons of the dedicated team pricing model:

• Along with greater control comes added responsibility

• You pay team members individually, which makes end costs harder to predict

If you want a more hands-on role with the developmental phase, this could be a good option. It’s best for those with some background in project management or development. You’ll pay your team directly with monthly salaries rather than intervals.

How to choose the best pricing models

Before changing SaaS pricing, be sure that you understand these models and their pros and cons. Here are some key selection criteria to keep in mind as you compare your options.

• Your project’s complexity

• The size of your team

• How hands-on you wish to be as a manager

• Your estimated budget

• Your time constraints

Fixed-price models are best for shorter term projects with strict budgets, while a more flexible model is better for longer term projects with wider flexibility.

How can GoCardless help?

No matter the pricing model you prefer, GoCardless can help. Businesses can collect invoice payments directly from customer bank accounts for a simple, cost-effective billing solution. We use direct debit to put your business in greater control over incoming payments, eliminating the uncertainty of late payments. Improve your cash flow, reduce stress, and maintain control over your project’s finances.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.