How you pay a software company shapes the project as much as who you hire. Pick the wrong model and a good team will still frustrate you. There are three models worth knowing.
The short version
| Model | Use it when | Avoid it when |
|---|---|---|
| Fixed price | Scope is clear and written down | You are still working out what to build |
| Monthly retainer | You have a live product that needs steady work | You need one large build finished fast |
| Dedicated team | You have a year or more of work and want control | You cannot give direction every week |
Fixed price
You agree a scope, a price and a timeline. Payment is split across milestones, commonly 40 percent at the start, 30 at the midpoint and 30 on delivery.
The strength is certainty. You know the total before you begin. The weakness is change. Anything outside the written scope becomes a change request with its own price. That is not the agency being difficult. A fixed price only works if the scope is fixed too.
Fixed price suits websites, first versions of apps and any project you can describe fully on paper.
Monthly retainer
You buy a set number of hours each month. The team handles fixes, improvements, small features and upkeep. Unused hours may or may not roll over, so ask.
This fits a product that is already live. Software is never finished. Operating systems update, users ask for things, integrations break. A retainer keeps a team that already knows your system on call, which costs far less than briefing strangers each time something goes wrong.
Blended rates from established offshore teams run USD 25 to 50 an hour, billed for the team and not per person. A typical maintenance retainer covers 20 to 60 hours a month, with response times agreed in writing.
Dedicated team
One or more developers work only on your product, full time, and take direction from you. You pay a flat monthly fee per person, typically USD 3,500 to 7,000 a month for a developer from an offshore team.
You get the control of an in-house team without hiring, payroll or office cost. The catch is that you must lead. A dedicated team with no product owner on your side drifts. If nobody at your company can set priorities weekly, choose fixed price and let the agency run the project.
Time and material, the fourth option
Some agencies bill hours as they go with no cap. It is flexible and honest for research- heavy work where nobody can know the effort upfront. For everything else, ask for a cap or a monthly ceiling. Open-ended billing with no limit puts all the risk on you.
What enterprise buyers should add
Whichever model you choose, larger organisations need a governance layer on top. A master services agreement with statements of work under it. Service levels for response and resolution. A named account manager and an escalation path. Weekly reporting on hours, progress and risks. Security and confidentiality terms that match your vendor policy.
A simple way to decide
- Can you write down everything the first version must do? Go fixed price.
- Is the product live and earning? Add a retainer.
- Do you have a roadmap longer than a year and someone to lead it? Take a dedicated team.
Many businesses move through all three in that order. A fixed price build to get live, a retainer to keep it healthy, and a dedicated team once the product becomes central to the business.
Questions to settle before signing
- Who owns the code and when does ownership transfer?
- What is the notice period to stop or pause?
- How are hours reported, and how often?
- What happens to unused retainer hours?
Frequently asked questions
What is the difference between fixed price and time and material?
Fixed price sets the total cost against a written scope. Time and material bills the hours actually worked. Fixed price suits clear scopes. Time and material suits work where the effort cannot be known upfront.
What does a dedicated development team cost?
A dedicated developer from an offshore team typically costs USD 3,500 to 7,000 a month, depending on seniority and technology.
Which pricing model is best for a new product?
Fixed price for the first version, provided the scope is written down. Move to a retainer or dedicated team once the product is live and priorities change monthly.