Over the years we’ve had a number of discussions with existing or prospective clients about engagement structure, in particular regarding fixed-price or fixed-bid work versus variable-pricing or T&M work. While there is ample history in the software development business surrounding fixed-price work, we typically try to steer our clients toward the T&M side.

Why T&M works for software development engagements

Many clients may read that and say, ‘of course!’ that works to your advantage, you can make more money, right? And when I hear that I try to counter with a few, in my view at least, powerful points:

– My number one goal in this business is to continue building a long line of reference-able clients. I feel strongly that when I do that, good things will happen – for my clients and for my business. Sure, in a T&M arrangement, if an engagement goes longer than initially expected, that potentially translates into more revenue, but if that comes at the expense of a frustrated (potentially non-reference-able) client, it’s not worth it;

– While a T&M engagement may seem to pull control away from a client, we vastly prefer clients who stay closely engaged with the development effort, and clients who engage typically find that they have more, not less, control. They define the very feature lists that will shape their product or system, they drive the list of features that get included in a particular sprint, and they are the first to see demonstrations of newly-completed features, so they can loop that info back into the sprint planning process, update the feature backlog, and add or delete features, all at their sole discretion. We’re there to consult and build, the client is very much in the driver’s seat;

– A fixed-price approach may suit very well-defined or dare I say rote work, but if we’re innovating with a client, inventing, changes come into play frequently, and that fixed-price deal can set up a confrontational relationship from the outset. If I’m working in that world, whenever I hear about an idea for something new, my responsibility is to frankly say ’no’ – or at least ‘maybe’ followed by, ‘let’s work up a change order for that’ – which tends to stifle the creative process;

Software development is challenging, and it can be expensive – an engaged client, though, working with a team they trust, can do great things, and build amazing new systems, all while maintaining tight control over process and costs. That’s the victory we aim to achieve, and I still call it a victory even if it takes less time than initially projected – we have a great deliverable and a happy client, which hopefully leads to more activity downstream. We’ll still take on fixed-price work under certain conditions, but we favor the T&M approach, with engineering expertise deployed in our flexible core model.

As I mentioned in the title, it’s a perennial question.