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Fixed Price vs Subscription Billing

At Mäd, we have two engagement models. The first is our fixed price approach, where the entire scope of the project is defined upfront, and we quote a guaranteed fixed price for the set scope of work. The second is a subscription model where we assign a certain number of team members to work on your project on a full time or part time basis, and they essentially become part of your business, but without all the headache or upfront costs of running an in-house team.

This article will provide the necessary information for you to make a decision in regards to a fixed price project vs a subscription to our services.  

It’s important to note that one thing that we do not do, is bill by the hour. We’ve discussed the perils of this in a previous article. Read it [here]

Fixed Price Billing

Fixed pricing refers to a set price, which can be recurring or a one time invoice, that identifies the cost of a project based on its detailed/broken down scope and is generally a stand-alone project. This price, as the name states, bills the exact amount each cycle. In most cases, the fixed rate doesn’t look into the work to be done but the work that was done already. You will be billed regardless of the output of the agency, however, good agencies will never try to charge you for mediocre work (at least we hope not). In other words, the fixed billing model invoices at the end of the month to reflect the work performed that month. Also, the service provider has then no obligation to continue the work after the invoice is declared and the billing term has ended if the contract doesn't state further work.

The fixed price approach is often what we recommend for smaller projects, or projects where the work is very easy to define upfront. Examples of this include brandings, code reviews, specification writing, and user testing and research. Because we have a good benchmark of how intensive these project will be, we are able to guarantee the price, regardless of the number of hours that we need to spend on the project.

However, fixed price projects tend to be more expensive than the equivalent work done under the subscription engagement model, because it increases the complexity of our resource planning. Also, if the scope changes, then the project price and timelines may also change accordingly.

Many fixed project projects then become subscriptions projects once a client is comfortable working us and trust has been established.  


Subscription Billing

A subscription approach can be seen as a more long-term direction to take when pricing and estimating projects. The reason that this is a more convenient approach for more in-depth and longer projects is that this approach can evolve with time and any changes that are needed to be made can be added to the scope of work with minimal cost to the teams involved. This is because as you are playing for an X amount time of the agency and not a monthly set milestone, the team members can focus on the quality of the work and allow new ideas to come in which will enhance the project. This method comes also with some key objectives or milestones as deliverables, and a scope of work,  just not set on a monthly standard.

In simple terms, a subscription is pre-paying for the hours and rates of the agency that will be in charge of making your vision a reality. You can have an easier time adding new necessary things as the payment is for the hours of the agency and not for specific milestones. This is most helpful when dealing with a long-term collaboration between an agency and a client. Also, a standard subscription will still develop a scope of work to be done within a time frame and set milestones and deliverables.

At Mäd we recommend this approach when dealing with more long-term projects such as app development, website development, and maintenance.

Conclusion

In the end, there is an easy way to compare fixed billing vs a subscription, even if they are in many ways quite similar. Imagine you are building your dream house, you give the builders the sketch of your house and tell them “this is how I want it” and give them a fixed monthly payment to build this. However, if you were not very specific at the initial part of the project then making any ad hoc changes will not be taken lightly. This also opens the way to the builders rushing production due to wanting to use up the least of their time each month (and have higher profits).

On the other hand, on a subscription basis, you give the builders a certain amount that they can spend (subscription). With this subscription comes the assurance that is planned ahead of time and you know exactly how much it will be to build your dream house and the different steps taken to achieve this. This subscription is usually at the beginning of the month and it assures you that the builders will have X amount of hours of full work on your house per month. Having these set hours and deliverables allows your subscription to be used in a proactive and efficient way.

Alejandro Berger

Alejandro Berger

Alejandro is Mäd's very own Content Development Manager. Originally from Chile, he studied in Minnesota, USA and then lived in places like New York City, London, and Hannover.

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Fixed Price vs Subscription Billing
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