Fair p(l)ay: Time and material pricing in software development
TOPICS
01 What is time and material pricing? 02 Why does this method work best for us? 03 The building blocks of a time and material contract

The other day I came across a tweet by Los Angeles-based video director Davy Greenberg. It said: “If I do a job in 30 minutes it’s because I spent 10 years learning how to do that in 30 minutes. You owe me for the years, not the minutes.” It got me thinking. How and how much to charge when selling your (or your team’s) expertise?

What is time and material pricing?

Davy’s tweet has sparked several posts of mine about the struggles of trying to build pixel-perfect digital products. Then sending a bill that you feel comfortable sending and the client feels comfortable paying. At Digital Natives, we swear by time and material-based pricing (T&M). In this model, the client is billed for the time and resources the team spends on the design and development project. Meaning, clients pay for the exact number of hours the agency works on the product, including any extra costs along the way.

Why does this method work best for us?

To answer this question, let me explain why others, fixed-price contracts in particular, don’t. Pricing is usually step zero of any project, which usually takes place when you know close to nothing about the job. I can almost hear you thinking ’Wait, doesn’t the client tell you what they want?’. Of course they do. The problem is that, more often than not, they don’t know what they want. How would they? Software development is a complex process. Mysterious bugs, changing scopes, surprise requests and third-party liabilities lurk around every corner.

So when a client comes to us, what they have at best is a rough idea of what they need.

Which means that what we can give them is also a rough estimate of what it’s gonna cost. The beauty of the time-and-material model lies in its flexibility. It allows you to trim the project scope to ever-changing business circumstances and cut back on administration. There’s no need to renegotiate the contract or go back-and-forth, arguing whether a feature was in our outside the agreed scope. And in my personal opinion, it’s the fairest method out there. If the client changes his mind about the product, he has to pay for any extra work the team needs to put into the project. Simple as that.

The building blocks of a time and material contract

But, if T&M is so simple and fair, why isn’t everyone using it? Well, because it builds on three pillars. These take a lot of time to build and take even more effort to maintain.

1. Transparency

T&M is based on the hypothesis that agencies do their best to deliver the best solution in the shortest amount of time. In other words, our no. 1 priority is making our client’s money work for them. Now clients prefer hard facts over hypotheses when it comes to money. That’s why we record whatever we bill our clients for. And we also make these records available to them for review at all times. Our developers, for instance, need to to log their time with 30-minute accuracy so our clients can keep track of what their money is spent on.

2. Honest communication

Communication is the foundation of any successful relationship. Why would agency-client dynamics be any different? This is why we start every new project by going through everything that’s been said so far in excruciating detail. We tell all our clients fair and square that we’ll charge them for everything that needs to be done, added or fixed. But we also reassure them that we’re ready to go out of our way to build their product in the most economical way possible. And if we fail to do so, which happens to the best of us, we make sure that the total on their bill reflects that.

3. Trust

Trust is a beautiful thing. Too bad it doesn’t come easy. We take pride in living by the ‘best value for money’ principle. Yet we can’t expect our clients to take our word for it and ask ‘Where do I sign?’ right after the kick-off meeting. Before each project, we carry out thorough UX research and give our honest opinion on how the product should be built. Or if it should be built at all. This way our client doesn’t waste a ton of money on something that no one needs in the first place. Because at the end of the day, what we’re building here is not just products. It’s the long-term success of our clients.

So what do you think? Is time and material pricing really the fairest option?

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