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Time And Materials (T&M) Estimate: The Pro’s And Cons

A time and materials type of estimate where the client agrees to pay based upon the time spent, and for materials (plus mark up), no matter how much work is required. Time and Materials estimate are great for projects where it’s difficult to accurately estimate the size of the project, or when it is expected that the project requirements are likely to change.

The advantage for the client is that they can keep changing their mind about the requirements, and not have to worry about the contract needing to be changed and if the job doesn’t take as long as originally estimated, they don’t pay for time they don’t use.

The advantage for the agency is that if the job takes longer than expected, the client should keep paying. With a time and materials budget, the client carries the risk.

Sounds great, right? Well in reality, most contracts tend to be weighted in favour of the clients; time and materials contracts are typically capped, with a guaranteed maximum price meaning the client gets money back if the project is completed quickly and the agency takes the risk and has to pay for any overages.  Furthermore, because in a time and materials contract the scope is often not clearly defined, sometimes clients start to try to dispute the hours. So for these types of contracts, it’s really important to keep clean and accurate timesheets, tracking the time spent of the project.

Fixed Price Estimate: The Pro’s And Cons

A fixed price estimate is where the client agreed to pay a fixed price, regardless of the amount of effort applied to the project. Fixed price estimates are great to use when there’s little uncertainty or risk in the project – a price is agreed and then paid.

The advantage of fixed price estimates for the client is that they know if they can secure the budget for the project, they’ll get everything that is offered for that price. However, clients can sometimes be nervous about fixed price estimates (or value based pricing) as they worry that they’re paying too high a price for the services that are being delivered. Consequently, clients sometimes use ‘best and final fixed price budgets’ to shop a project around, and try to get agencies to bid against each other.

The advantage of fixed price budgets for an agency is if you can get the client to agree to a high price, and deliver it more efficiently, you stand to make a bigger profit. The disadvantage is that if you go over the project budget, the client won’t pay any more money for the project. With a fixed price budget the agency carries the project risk so it’s important that the scope of the project is tightly defined.