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September 26th, 2022 | 12 min. read

Fixed Fee vs Time & Materials Scoping Workshop – Pros & Cons

When you decide to bring your pricing software idea to life for your organization, questions are bound to appear everywhere. Usually, top of mind is; ‘What is the best approach to cover all the aspects of the pricing software planning and preparation for the project?” And the answer will almost certainly be having a scoping workshop to get your ducks in a row. But there’s more to it than that; what will be the best type of scoping workshop to answer your company’s unique pricing challenges and points? That is why we put this article together to help businesses just like yours decide between a fixed fee and a time and materials scoping workshop and/or eventual agreement and evaluate the pros and cons of each approach. 

At Pricefx, for more than a decade now we have been empowering businesses just like yours to find their own unique pricing niches with the use of innovative pricing software technology. As such, Pricefx is perfectly placed to discuss exactly what kind of scoping workshop will be the best fit to help your business make the most of the opportunity and be most advantageous to bring your company’s unique set of business objectives to life. 

From the Pricefx perspective, our company mostly focuses on Time & Material scoping workshops.

 

However, we also provide a Fixed Fee scoping workshop model for small projects that can be accomplished in a single phase and have a well-defined set of requirements.

So let’s take a closer look at what fixed fee and time and materials are, the pros and cons of each and what types of companies should consider each specific scoping workshop model.  

What is a Fixed Fee Scoping Workshop? 

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In a fixed fee scoping workshop, the budget for your pricing software will be set. Fixed fee is exactly as the name suggests. A software provider will define a scope of work with your help, and then deliver that exact scope of work for an agreed upon price.  

The extent of the pricing software project (i.e., the number and complexity of the features you decide you want) – for example, maybe you only require pricing analytics and promotions management but do not require a CPQ (Configure Price Quote) solution as you work in retail.  

In other words, as the client, you will pay a fixed amount of money (billed based on the completion of defined milestones) for exactly the type of pricing solution that you want, and the amount that you will pay will be based on two main factors: 

  • The deadline you set for the completion of the project 
  • This type of contract allows you to pay out a single price for everything: features, materials, and bug fixing. 

To get the most out of the fixed fee scoping workshop model, your pricing software requirements need to be very well-defined down to the last detail.

 

What that means is if you are choosing the fixed fee model, your pricing software planning phase needs a well-defined scope that is limited in size, because it is impossible to estimate a true and fair price when unknowns exist.

As the client, you also need a clear idea of the pricing functionality build, including the capability and performance of your pricing solution. Pivoting and switching do not usually fit within a fixed fee budget. 

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The Pros of a Fixed Fee Scoping Workshop 

For businesses looking for cost and pricing functionality certainty, a fixed fee model provides a warm and fuzzy feeling of security. You know upfront what your costs and spacing out payments evenly as benchmarks are met allows for effective budgeting. Other benefits include; 

  • Finalized cost, low financial risk – After the pricing software project cost is set out in the contract, you will know precisely how much you’ll pay, without any nasty surprises. With the fixed fee model, the potential to overspend is eliminated. 
  • Fixed deadline – With a final scope and detailed features, the pricing software implementation team can better estimate the completion timeline for the project with a clear plan and definite deadlines. 
  • Easy-to-follow implementation schedule – You’ll know which features will be implemented at any given point during the project, or if there are any delays. 
  • Limited project management needed from your Executive Sponsors – Once you’ve handed over access of your data to your pricing software provider, there is usually no requirement for continuous supervision for your C-Level Executive Sponsors or Ultimate Decision-Maker. 

The Cons of a Fixed Fee Scoping Workshop 

While it is great to have a level of certainty in your cost and the range of pricing functionality that your software solution will provide, some cons also exist that you need to be aware of; 

  • Higher costs – No changes in the budget during the project means that the software development company needs to foresee every possibility and be prepared. That means the price in the fixed fee model should include a reserve amount, as ‘insurance’ to avoid any risks of adding ‘extras.’ 
  • Lack of flexibility – is a major weak point of fixed fee agreement. As a customer, you can become responsible for any emergent changes that you may make. 
  • Not suitable for complex projects – With smaller or less complex pricing software projects, the fixed fee model works remarkably well. However, if your organization’s user case for pricing software is more complex, (and you feel that you might need to add on functionality throughout the process), the fixed model will be too rigid for you. Organizations with complex functions, workflow approvals and other dependencies, may require more review, modification, and flexibility. 
  • Miscommunication risks – For a fixed fee model, clear and straightforward communication is a must. If you accidentally miss a detail or the pricing software project specifications are not clear, you might easily receive something different than what you expected, and that can be another potential drawback when it comes to short deadlines. 

What Type of Businesses Are the Best Fit for Fixed Fee? 

Wondering if your company is a good fit for a fixed-fee model? 

Fixed-fee scoping workshops and eventual agreements are best when: 

  • You have well-defined requirements and a clear vision of the future state of your systems. 
  • You value ‘cost certainty’ 
  • No dependency exists on other on-going projects or initiatives. 
  • The scope of the pricing software project is small. 
  • The requirements are 100% defined. 
  • The requirements will not change. 
  • The work is ‘turnkey,’ (i.e., when the pricing software provider has done the exact work repeatedly on many occasions with little to no variation). 
  • Flexibility is not a key requirement. 

What is a Time & Materials Scoping Workshop? 

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With a time & materials scoping workshop and eventual agreement on your pricing software deployment, your business pays simply for the real time spent on building out your pricing software solution. It’s a more flexible agreement than the fixed fee agreement which will allow you to make changes to your pricing software product, alter priorities, shuffle features, pivot and react to market and user needs as they occur. 

For example, time & materials allows for adding new functionality like bringing in competitor data and implementing a competitor-based pricing strategy that was not initially in scope. 

The Pros of a Time & Materials Scoping Workshop 

If it is flexibility that is your organization’s key as you scope out your pricing software requirements, Time & Materials should be your chosen way forward; 

  • Simplified project start – To begin work, you do not require a final, detailed pricing software plan. You merely need to define the scope as the minimum viable features to start the development. You can always add more functionality to your pricing software package as additional needs become apparent. You will only be billed for the work performed. 
  • Quick market change responses – You will have the flexibility to make any change required to make your pricing software package precisely what you need to succeed. For example, let’s say you planned to integrate agreements and promotions functionality to your pricing software package, but you discovered you can manage everything you need through the package’s rebate management functionality. Depending on the vendor you choose, you may be able to leave out a feature you don’t require and implement something more valuable and relevant to your business. It is still worthwhile gathering all your requirements for prioritization later.. 
  • Dynamic work scope – With larger projects, the main priority is to have a general idea of what you want to achieve. Knowing exactly how your goal will be achieved is rarely known at the beginning of the project. Your pricing software needs may evolve during the project. 
  • Better pricing software project control – The Time and Materials model is often used in Agile development, as it gives you, (as the client), the possibility to be a part of the work. That usually means sprints, iterations and meetings organized regularly to discuss progress and the next steps involved. 
  • Transparency – As your work needs and progress are open to change and evolution, in general, you can have regular planning meetings and product demos as required to keep track of the progress of your pricing software project.  

The Cons of a Time & Materials Scoping Workshop 

But it’s not all positive, please remain alert that there are some disadvantages to the time and materials model too. To address that, gather as many requirements as possible during the workshop, prioritize them and put together a road map to deliver functionality in phases.  

This splits the project into logical deliverables and provides quick time to value. Agile methodology ensures that work on high priority requirements is completed first and focus goes onto the ‘nice to haves’ if budget remains. Watch out for; 

  • Low budgetary control – Since the scope of the project is quite literally a work in progress and not defined in detail, you can’t be sure of what the exact final cost of your pricing software project is. Only an approximate amount can be predicted based upon the modules of the software you think you require implemented and the estimated work hours. 
  • Deadline Uncertainty – As your pricing software project can evolve according to market needs and changes in your business, it can be hard to define an exact release date. That’s why setting milestones is so important for this kind of cooperation and flexibility to reduce scope if required is built-in. 
  • Deep involvement – This may not be a disadvantage if you have the time and commitment to be involved in building up your pricing software product together with your chosen vendor. However, if you don’t like, don’t want, or don’t have time to be a part of the pricing software project team, Time and Materials might not be the best model for your business. It requires presence, patience and often – active participation. Expect plenty of involvement from your vendor’s subject matter experts, especially early in the project. 

What Type of Businesses Are the Best Fit for Time & Materials? 

Time and Materials are the best fit for a business when; 

  • The scope of the pricing software project is not small 
  • The requirements are not fully known at the time the project is in the initial planning stages 
  • The requirements may change during the pricing software project 
  • Flexibility will be required to modify the scope or change the features and functionality of the pricing software once the project has begun. 

The main benefit of a Time and Materials workshop and eventual agreement is the inherent flexibility it provides. During the course of your pricing software project, you can adjust requirements, incorporate additional inputs, swap out features if required and change direction so that you get exactly the product your business wants. 

What Follows the Scoping Workshop?  

Now you know the difference between Fixed Fee vs Time and Materials, you know where to begin when discussing the focus of your scoping workshop with your pricing software vendor. Your personalized scoping workshop will be a list of user stories that will define your organization’s specific use cases, business requirements and ‘wish-list’ outcomes. These user stories will be reviewed with your pricing software provider, and you will work together on your solution/s. 

Your pricing software vendor’s solution architects will estimate the effort and duration to implement your pricing solution and knowing whether you’re looking at a fixed fee or time and materials model will be critical to knowing how to implement your software. Whichever way you decide to go, the implementation will be set up into multiple phases to ensure the fastest time to value possible for your company.  

But how long should you anticipate those phases of implementation to be and what are the processes in each phase?  

For your convenience, check out the handy article below from our expert Pricefx implementation team to familiarize yourself with the pricing software implementation process:  

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About the Author 

Johnson Kolettu has extensive experience in the IT area spanning Business Solutions designs, Solutions Architecture and frameworks, Application Development and Database Design, Data Analysis and Interfacing that has guided large organizations through full SDLC to deliver high-impact applications. He currently assists clients in defining requirements that add the most value to their organizations via state-of-the-art technology and best practices in his work as a Senior Project Manager – Customer Solution Sales at Pricefx.