Introduction

Software development is a fast-moving industry. New technologies, frameworks and methodologies emerge every year. It’s not only the companies that need to adapt their processes but also the developers and agencies like Bytehogs who have to keep up with new technologies in order to be able to create applications and services that provide maximum value to their clients.

Fixed-price

The most common pricing model for software development is the fixed-price model. This model is good for projects that have clear goals and requirements, but it can be challenging if the scope of work changes during the course of development.

If you want to make changes to the scope such as adding new features or removing some, these would typically be handled under what's known as a change request. A change request is an amendment to the agreements and can often come with additional costs, so when considering a fixed-price model either ensure that the agreed upon scope is sufficient enough or be willing to pay extra if you change your mind during or after the development.

Time and materials (T&M)

Is a payment model where the client will pay for the actual hours worked on the project. This is a more flexible option than fixed pricing, but it can also be more expensive if you don't have good estimates of how long things will take.

If your project runs longer than expected, your costs may increase but you won't be surprised by additional fees later on or have to go through the change request process.

This sort of arrangement is usually preferred as it reduces the amount of time required before starting a project to outline absolutely everything in a project as you would in a fixed-price model. But there is no doubt that without a clear goal in mind and a development team who understands exactly how to deliver it, then this can be a costly approach to getting your product delivered.

Revenue-share

Revenue share is a model where you share the revenue with the development agency. In this case, the development agency gets a percentage of the revenue from the product. This can be either until the original cost + interest is paid off, or on a much longer-term arrangement.

The benefit of this approach is that it gives you a chance to get your product built and launched with very little upfront spend. It by no means is that you're getting your product for free, however, it's very common for an agency to charge an upfront fee to kick off the project and add clauses into the Master Services Agreement to ensure that should the product not receive any revenue that the agency still gets paid for the work they've done.

Bytehogs is in the fortunate position to be able to offer this pricing model to the majority of clients, if you're interested in working with us on this sort of arrangement we'd be happy to discuss your project in more detail.

Software development agencies have different ways to charge for their work.

The most common software development pricing model is the fixed-price model. This means you're paying for a specific amount of time and/or resources, regardless of how much work is actually done during that time period.

The second most common model is time and materials (T&M). In this case, the project manager will estimate how long the project will take to complete and then charge you based on those estimates. This model works well if there are many unknowns involved in your project--for example, if you're trying to build a complex product or if it's an unfamiliar industry.

It's also possible for agencies to offer revenue sharing as a pricing strategy; revenue sharing involves splitting revenue, not profits, between yourself and your vendor after they've delivered your product

Conclusion

In this article, we've covered the main pricing models that agencies use. Each model has its pros and cons, so it's important to think about which one will work best for your business.

This article is not meant to discourage you from pitching your product. It is, however, important to understand the different pricing models and how they can affect your business. The goal is to build a valuable product for your customers or clients, and it's essential to ensure you can do this without running out of money first!

If you're thinking about getting a product built and would like an idea of cost and which pricing models could be applicable, get in touch today. Here at Bytehogs, we like to offer free consultations to help you get an idea of what's possible and for how much. We offer all of the pricing models mentioned in this article so there are plenty of options that we could help with.