Why we No Longer Supports Fixed Cost Projects
That’s right, its a joyous day at Space Chimp. After much debate and consideration we have decided to no longer support fixed cost project requirements. We hope our clients and future customers will find the move provides a more efficient, transparent and fair solution to project billing.
We understand the desire and appeal of fixed cost projects. They provide the client with a set cost that fits neatly into corporate budgeting. However, we believe the cons far outweigh this singular pro for both the client and the agency.
Its Bad For the Client
#1 Bloated costs
What many agency clients may not know is that agencies have to present bloated fixed cost budgets to account for hidden requirements that may or may not exist. Often times you are paying for hours that are never used.
#2 Cutting Corners
On the other hand, you may get lucky and the agency underbids the project. Before you celebrate, usually in these cases, the agency starts trying to find ways to cut corner so they don’t lose money on the project. The agency could also ask for more money but then what was the point of having a fixed cost project? Either way, its a lose lose situation.
#3 Hidden Fees
Usually, fixed cost projects have safe stops built in by the agency to ensure the project hours don’t far outstretch the scoped hours. For example, many agency will limit the number of revisions. Additional revisions come at an additional cost. Once again, defeating the point of a fixed cost project. Also, things that fall out of the scope will be billed additionally.
Its Bad for the Agency
Underbidding a project for an agency is a nightmare. No company wants to lose money. Thus, you’re faced with three options:
- Suck it up and lose money
- Ask the client for more money and risk straining the relationship and possibly destroying it
- Cut corners to try to salvage a profit
As you can see, there are no good options.
#2 Scoping instead of building
At some point as an agency you get swamped scoping projects and making assumptions on a projects cost. With all the challenges actually scoping projects correctly we asked ourselves is it really worth it? Especially, when the cost model is so flawed.
Scoping a project in itself is flawed. At least when you’re building a house your building it on a set blueprint. Many project Request for Proposals (RFP) ask you to imagine the final product and then guess how much it would cost to build said imaginary item. How could one possibly do this with any sort of reasonable accuracy? The truth is – agencies can’t really and we simply refuse to go along with this practice just because the others before us have done so.
#3 Tracking revisions
What’s a revision? What’s not a revision? What’s billable hours and what’s not billable?It’s a conversation you may have had. In the end, its a waste of time and simply strains the relationship between the agency and client.
Superior Project Billing Models
Billing by the hour
Billing by the hour and being 100% transparent with your billing in real-time is by far superior to fixed cost projects which leaves you with overpaying and arguing about costs.
Benefits of Billing by the Hour
- No long term contracts
- Pay as you go
- No bloated project budgets
- Flexibility to change the project scope
- More building, less scoping
Concerns You May Have
There’s no plan – Let’s be clear, billing hourly doesn’t mean starting a project with no sort of plan and idea of cost. We always provide an estimate for the project and timeline. We’re just less worried about changes in the scope and revisions and more worried about building you something amazing.
Being Truthful – Some may be concerned about being cheated by an agency billing for more hours then they spent. Once again, if the agency is 100% transparent with there time tracking – there shouldn’t be any concern. More importantly, if you don’t trust your agency to track there hours fairly, you definitely have the wrong agency.
To learn more about our pricing models – contact us.