Fixed cost is hurting your business.
A 3 minute read, written by Chris Annetts on 9 May 2017.
Projects turn in to games of brinksmanship, where neither side wins.
If you’ve ever been on either side of a web-based project, there’s a high chance you’ve experienced the high-stakes fun of a fixed cost quote.
The most common, and often favoured way of pricing a website or an application, is to fix a one-time cost against the agreed scope of the work.
At a glance, it makes a lot of sense. The producers know how much they’re going to be paid for the work, and can plan accordingly. The client knows exactly how much to budget, and can confidently make an argument for allocating funds.
Digital products are highly likely to change course. With a website, it could be the result of user testing, a killer new idea, or stakeholder interference. In product development, it may be unexpected early-doors feedback or a full-blown pivot.
When costed ahead of time, you simply cannot plan for the unknown. As new ideas get discussed, or features emerge, who decides if it’s actually in scope or not?
You didn’t say you’d do it, but you didn’t say you wouldn’t either. I just assumed it’d be included.Joe Schmoe, Client
The truth is that, when project costs are finalised, neither party quite knows what they’re agreeing to.
Though they’re often referred to as estimates, the initial quote given is nothing more than a best guess, based loosely on previous experiences.
Fixing the cost of a large project switches the mentality from the get-go; “This is your profit pot, and the quicker you smash this out, the more money you’ll make”.
When the budget is running low, it’s again product that suffers. Care and craftsmanship go out of the window; features are sidelined, or worse half-arsed. Testing is rushed through; “who uses Opera Mini anyway?”.
For small or ad hoc pieces of work, we bill at our hourly rate, and invoice for the sum of hours at the end of the calendar month. For everything else, there’s sprints.
A sprint is a small, focused subset of work, usually lasting between a 5–15 days. Rather than making best guesses at the total project cost, the work is instead broken in to mini-projects.
As the project progresses, knowledge increases; patterns emerge, users feedback, and priorities shift. After each sprint, both parties are able to reevaluate and/or reposition themselves. The next sprint is then conceived with informed judgment and hindsight.
Fixed cost contacts are cumbersome artefacts, lingering from a younger, more naive Web. Today, they just don’t map to the flexible workflow needed to create great products.
It can be daunting to leave the comfort of a fixed cost waterfall project, but it’s nothing more than smoke and mirrors. Empower yourself to make informed decisions throughout the project; it’ll show in the quality of the work that’s produced.