You've agreed on what needs to be built. Now comes the contract question: fixed price or time and materials? Most business owners pick fixed price by instinct — a known number feels safer than an open meter. Sometimes that instinct is right. Often it's exactly wrong, and it costs you money either way.
Here's how both models actually work, where the risk really sits, and a practical way to decide.
How the two models work
- Fixed price: you agree on a scope and a price upfront. The supplier delivers that scope for that amount, regardless of how many hours it takes. €35,000 for the portal as specified — done.
- Time and materials (T&M): you pay for the hours worked, usually at a rate between €85 and €140 per hour for experienced developers in Western Europe. The scope can shift as you learn; the bill follows the work.
On paper, fixed price puts the risk on the supplier and T&M puts it on you. In practice it's more subtle than that.
The hidden cost of fixed price
No supplier prices a fixed-price project at their expected effort. They price at expected effort plus a risk buffer — typically 15 to 30 percent, more if your specification is vague. That buffer is not dishonesty; it's how fixed price works. You are buying certainty, and certainty has a price.
So if a project would honestly take €30,000 of work, the fixed-price quote lands at €36,000–€40,000. If everything goes smoothly, you paid a premium for insurance you didn't need. If it doesn't go smoothly, you hit the second problem: the change request.
Fixed price only stays fixed while the scope stays fixed. Every insight you gain during the project — and you will gain them, because that's what building software does — becomes a negotiation. "Can the export also include order history?" is a five-minute conversation on T&M. On fixed price it's a formal change request, a mini-quote, and a week of delay. Projects with rigid fixed-price contracts don't have fewer scope discussions. They have slower, more adversarial ones.
The hidden cost of time and materials
T&M has the opposite failure mode: nothing forces convergence. If the supplier is disorganized — or simply not incentivized to finish — the meter runs. You carry the full risk of estimates being wrong, and you only find out at invoice time.
T&M works when two conditions hold. First, you get real visibility: weekly demos of working software, not status reports. Second, there's a credible estimate upfront and the supplier flags deviations early, when you can still steer — not after the budget is spent. If a supplier proposes T&M without offering either, that's your red flag.
What the incentives do to behavior
The contract shapes how people act, and that matters more than the rate.
- Fixed price pushes the supplier to build the cheapest thing that satisfies the letter of the spec. Corners get cut where you can't see them: error handling, edge cases, documentation.
- T&M pushes toward honesty about trade-offs — "we can do this properly in three days or patch it in one" is a conversation you'll actually have — but it requires trust and someone on your side paying attention.
The hybrid that usually works best
For most SMB projects, the sensible structure is neither pure model. It looks like this:
- Fixed-price discovery first. One to three weeks, typically €2,500–€7,500, delivering a concrete specification, architecture and estimate. Small, capped, and it de-risks everything after it.
- Fixed price per milestone for well-defined work. Not one €60,000 contract, but four or five milestones you can evaluate — and stop after — individually. The risk buffer shrinks because each chunk is small and specified.
- Capped T&M for the genuinely uncertain parts. Integrations with undocumented legacy systems, data migrations, exploratory features. An hourly rate with a ceiling and an agreement to review when 70 percent of the budget is used.
This gives you fixed-price certainty where certainty is possible, and honest flexibility where it isn't — without paying a fear premium on the whole project.
How to choose for your project
- Scope is clear, small, and stable (an integration with well-documented APIs, a defined tool): fixed price is fine. The buffer will be modest.
- Scope is clear but large: fixed price per milestone. Never one big number for six months of work.
- Scope is genuinely uncertain (new product, legacy untangling, "we'll know it when we see it"): capped T&M with weekly demos. A fixed price here just means paying 30 percent extra for a number that will change anyway.
- The supplier refuses any cap, estimate, or milestone structure: walk away. That's not a contract model, that's a blank cheque.
One more thing: the contract model matters less than who's on the other side of it. A good partner behaves the same under both models — transparent about progress, early about bad news. A bad one will find the weak spot in whichever contract you sign.
Deciding how to structure your project? I'm happy to walk through what fixed-price and flexible parts would look like for your specific case — no strings attached.