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CHOOSING THE RIGHT PRICING MODEL WITH YOUR MOBILE APP DEVELOPMENT VENDOR?

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INTRODUCTIONWhat is risk? It is the potential to lose something of value. For a technology startup, that value could be its investment fund or its expected future returns. In order to mitigate risk, both parties – the startup entrepreneur and the mobile app development company – should carefully consider the type of pricing model before formalizing any contract.

Following are some of the most common pricing models and when they work best:

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Fixed Price ModelIn a fixed price model, both the price and the scope of work are set in the SOW (Statement of Work) and neither can change without an agreement from both parties (the client and the vendor.)

Choosing the fixed price model is beneficial for you when any of the below apply:

• The scope of your project is well defined, with clear requirements, set specifications and defined timelines, and is unlikely to change for the duration of the project

• The project is small and will take a few weeks for completion• You have entered into fixed price contracts before• The vendor is reputable

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Time and Material (T&M) Model This is one of the oldest engagement models in which the client and the vendor agree upon an hourly rate. The rate is finalized after factoring in the expertise of the resources who are going to be working on the project, the time taken to complete the project and the location of the vendor.

Choosing the time and material model is beneficial for you when:

• There are too many unknowns and the requirements keep evolving• The project is large and will take a few months to deliver• You want to know if the amount of work done corresponds with the

payment being quoted

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Hybrid ModelThis engagement model is a combination of both the fixed price and the T&M model. In this model, you pay a fixed price for an Ideation Workshop where your vendor helps you develop and define the scope of the project, and then switch to the T&M model for the project execution phase. This model serves as a good starting point and sets the ground for realistic expectations.

Choosing the hybrid model is beneficial for you when:

• Your requirements are unclear• You want to develop an MVP to secure capital• You want to optimize your budget without compromising on the

quality of the final product• You want to mitigate the risks associated with either model alone

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Revenue Sharing ModelIn this engagement model, both parties work toward a common goal so that both can reap the benefits from the end product. They put their heads together to develop the business requirements, set specifications, develop the project scope and estimate costs. Since their interests are aligned, both of them work to the best of their capabilities and share revenue once the desired outcome is achieved.

Choosing the revenue sharing model is beneficial for you when:

• You want to share the risk, if any, with your vendor• Your technology vendor understands and shares your vision

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Final Word: Minimize Risk, Maximize Value

The choice of engagement model, although only an initial challenge, can have deeper repercussions throughout the course of your project, if not made correctly. It is best to adopt a rational approach which takes into account all known parameters and is not driven by any prior assumptions. Take the time to understand your business goals and do your due diligence on each engagement model before determining the best fit for your startup.

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July Rapid is the services studio of July Systems. The services studio is widely acknowledged to be among the top app development companies, globally. July’s award winning development platform and service is used by some of the world’s best known companies.

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