A fixed-price contract gives you a known cost and date for a defined scope, and puts the risk of estimation on the vendor. Time and materials bills you for hours worked, gives you flexibility to change direction, and puts the risk of overruns on you. For a first release with a clear scope after discovery, fixed price is usually right for a non-technical founder. Time and materials suits ongoing work after launch, when the product is evolving from user feedback.
Somewhere in your first conversations with a development company, the words "fixed price" or "time and materials" will come up. Founders often accept whichever is offered. It is worth understanding both, because the contract type decides who carries the risk when things take longer than expected, and things always take longer than expected.
What does each one mean?
Fixed price: you agree a scope, a price and a date. The vendor delivers that scope for that price. If it takes them longer, that is their cost. If you want something outside the scope, it is a change request with its own price.
Time and materials: you pay for the hours or days the team works, at agreed rates, usually with an estimate up front. You can change direction at any time. If the work takes longer than estimated, you pay for the extra time.
How do they compare for a founder?
| Fixed price | Time and materials | |
|---|---|---|
| Cost certainty | High, for the agreed scope | Low, an estimate rather than a commitment |
| Flexibility | Changes go through a formal process | Change anything at any time |
| Who carries estimation risk | The vendor | You |
| Requires up front | A clear, agreed scope, usually from a discovery phase | A direction and a budget ceiling |
| Vendor incentive | Finish efficiently, resist scope growth | Do thorough work, no pressure to cut corners, but also no pressure to finish |
| Best for | A first release with a defined scope, founders with a fixed budget | Ongoing development, research, products changing weekly |
| Main failure mode | Scope defined badly, leading to disputes over what was included | Budget runs out before the product is finished |
When is fixed price right?
- You are building a first release and you have a fixed budget you cannot exceed.
- The scope has been defined properly, ideally through a discovery phase, so both sides know what is being bought.
- You are not technical and do not want to manage hours, only outcomes.
- You need a date, for a launch, an investor or a customer commitment.
The condition that matters is the second one. A fixed price on a vague scope is a dispute waiting to happen. Vendors protect themselves by either quoting high or by interpreting the scope narrowly, and either way the founder loses.
When is time and materials right?
- The product exists and is evolving from user feedback, so scope changes weekly by design.
- The work is exploratory: research, a proof of concept, integrating with a system nobody has documented.
- You have a technical person on your side who can judge whether hours are being spent well.
- You are extending an in-house team with extra capacity rather than buying an outcome.
What should you watch for in each?
Fixed price
- Scope written as features, not journeys. "User login" is a feature. "A user creates an account, verifies their email, resets a forgotten password and deletes the account" is a scope. Insist on the latter.
- Assumptions buried in the proposal. Read them. That is where the exclusions live.
- Change request pricing. Agree how changes are priced before you need one.
- Payment tied to milestones you can see. Pay for working software demonstrated, not for calendar dates.
Time and materials
- A budget ceiling in the contract. The team must stop and consult when it is reached.
- Weekly reporting of hours against progress. Not a timesheet, a demo plus a summary.
- Named team members and rates. Know who is doing the work and what each hour costs.
- A defined outcome per sprint. Even flexible work should have a goal every two weeks.
Is there a hybrid?
Yes, and it is what we use with most founders. A short, fixed-price discovery phase produces the scope, design direction and road map. The first release is then quoted as a fixed price against that scope, so you have a known budget and date. After launch, ongoing work moves to a monthly retainer or time and materials with a ceiling, because by then the product is changing from real feedback and flexibility matters more than certainty. Each phase uses the contract type that suits it.
Choose fixed price if
- It is a first release and the scope has been through discovery.
- You have a hard budget or a hard date.
- You want to manage outcomes, not hours.
Choose time and materials if
- The product is live and evolving weekly.
- The work is exploratory or poorly documented.
- You have someone who can judge how hours are spent.
How 7L contracts
We guarantee delivery of the first release within the agreed budget and timeline, which is only possible because we scope it properly first. You see progress in regular demos, changes are priced openly, and after launch we move to whichever model fits the work. If you have a proposal in hand and want a second opinion on the contract terms, send it over. For what the numbers inside it should look like, read what an app costs in 2026 and how agencies, freelancers and in-house teams compare.
Frequently asked questions
Is fixed price always more expensive?
It includes a margin for estimation risk, so the headline may be higher than a time and materials estimate. The estimate is not a commitment, and time and materials projects that overrun often end up costing more. Compare the fixed price with a realistic range, not with the optimistic estimate.
What happens if the vendor underestimates a fixed-price project?
That is their cost, which is the point. Be alert to a vendor that responds by cutting quality or narrowing scope. Milestone payments tied to demonstrated software protect you from that.
Can I switch from one model to the other mid-project?
Yes, at a natural boundary such as the end of a release. Switching mid-release is messy because the scope and the hours become hard to reconcile. Plan the switch at a milestone.
What is a retainer?
A fixed monthly fee for a defined amount of team capacity, used for ongoing improvements and support after launch. It gives cost predictability with flexibility about what the capacity is spent on.
Should discovery be free?
A first conversation should be. A proper discovery phase, producing a scoped release and road map you could take elsewhere, is real work and is usually paid. Free discovery tends to be shallow and is often recovered in the build price.