Pros and cons of the time & materials model

A couple of weeks ago, I wrote a blog that briefly explained four partnership models we most commonly use at Bornfight – fixed price, time and materials, retained partnership and the consulting and training model. Now I decided to dig a little deeper, and explain the details, the pros, the cons and the different types of projects these models are good for.

Every blog post in this series will cover one of the models. This second blog will talk about the time and materials model. So let’s get started!

What is the time and materials partnership model

Time and materials model means that clients pay for the exact number of man-hours and materials spent on production of their project. When a deal is made between clients and a development company, and they agree on the time unit that will be used to calculate the price (in most cases, that time unit is an hour), the company begins working on the project. Every month, a development company sends clients a report that states the exact amount of hours that were spent on production during the previous period. In addition to the number of spent hours, this report also lists all additional materials that were used during the production (like font licences, servers, photo sessions…) alongside their prices. When all of this is done, clients receive the invoice with the calculated amount. At Bornfight, we usually send these invoices on a monthly basis, but we sometimes arrange with clients that invoices are sent on a weekly basis or after a particular feature has been finished.

I would say that time and materials is a partnership model that is the most fair out of all the models, as clients pay only for the time and materials that are spent on their projects – nothing more and nothing else. The production company is also paid only for their work – there are no situations where a project isn’t properly scoped so the company has to work more to finish the project or that the project is done faster than expected so clients end up paying for extra hours that haven’t been spent.

For what types of projects is the time and materials model a good option

This time and materials model is a great partnership model for those projects where a development company can expect to work frequently on different aspects of clients’ digital solutions. When it comes to specific types of projects, I’d say we use it mostly for digital products and custom software, as well as some larger mobile applications – basically projects that require more frequent upgrades, that need to be implemented with latest technologies, projects with a larger number of users where upgrades are based based on user feedback, market feedback… a product that is living on the market and grows or changes with it. For these types of continuous projects, time and materials model is a top pick.

To summarize, the time and materials model is great for larger, more complex projects that don’t require a whole team to be available at all times, but in various periods when new features, changes or upgrades need to be developed, implemented and launched.

For what types of projects the time and materials model isn’t a good option

I wouldn’t recommend the time and materials model for those projects that are smaller in scope, that aren’t as extensive or as complicated as the ones I mentioned in the previous section – for those types of projects, we usually use the fixed price model.

If the projects are much larger, really complex and with an undefined scope, but they need a team to constantly work on them, then the retained partnership or FTE (full-time equivalent) is a much better choice than the time and materials model, as clients gets a dedicated team.

Pros of the time and materials model

Time and materials model comes with a number of clear benefits for our partners and clients.

Clients pay only for the time and materials spent

There are no extra fees that may come as a result of a wrong project scope and clients can be sure they aren’t paying for more than it took to create it. They pay for the exact amount of hours that were spent working on their project multiplied by the agreed upon hourly rate. This number is then added to the money spent on additional materials that were used for the project (font licences, photo licences, servers…) – this gives the final price that will be on the invoice.

Transparency can be achieved through ballpark estimates

Although there is no way to tell the exact number of hours that our team will need to spend on a project or the exact price clients will be billed at the end, we give our clients a ballpark estimate about the price and the timeline so they have a broad idea of what they might expect budget-wise and time-wise. Those ballpark estimates are not fixed, but they have just enough information so clients can make a decision if they want to continue with the project.

There is a certain level of flexibility

With the time and materials model, clients can decide how much involvement do they want from the production company. For example, they may have periods during the year where they need the production company to develop more features or implement more upgrades – and they’re willing to invest more during those periods. On the other hand, they may have periods where they don’t need any work to be done and they don’t want to pay for the team to stand by. This kind of customizable flexibility is possible only with the time and materials model.

Cons of the time and materials model

On the other hand, this time and materials model also comes with a couple of cons.

Clients don’t get a dedicated team for their project

As a company, we have experts who constantly work on different projects that all have their timelines and estimates. If clients with whom we work on a time and materials model ask us to develop something new for their app, we can’t guarantee that the same people who worked on the app before will work on this new upgrade. If those exact specialists are working on another project, we can’t quickly (or sometimes at all) switch them from one project to the other.

If that happens to be the case, clients have two options – either wait for the specialists to complete the current projects they’re working on, or have a new team of specialists take over and work on the implementation of the new feature. The only model that gives the clients a dedicated team for the project is the FTE model, and we’ll cover that one in another blog.

Despite the ballpark estimates, there are no exact time or price guarantees

Although we give our clients ballpark estimates of the time and price, these estimates don’t include possible changes or additions that clients would like to implement. If clients needs us to do additional changes on the project or decide to implement a new feature, that automatically affects the estimate.

Another thing that can happen with this estimates is that they can get fairly broad in specific cases – if a project or a functionality is very complex or undefined, a maximum point of the estimate can sometimes be 30 to 40% higher than the minimum point. And that can translate to quite a lot of money and time.

Other blog posts in the series

This has been all for this edition of partnership & pricing models. Follow the links below to read other posts that have been already published in this series.

1. Which digital agency partnership model is the best for your business?
2. Partnership & Pricing Models: pros and cons of the fixed price model