Why “Fix cost model” doesn’t work for Product Development?

Why “Fix cost model” doesn’t work for Product Development?

April 26, 2016 / Nirav Shah

Once the client offers the requirements for product development, the product development company has to offer a rough quote to start the product development. If the company offers the fixed cost model to the client, the company has to build the product as per the fixed cost model avoiding the major requirements from the client side. To avoid this scenario, the company has to provide a variable cost model as the client will have varying requirements depending on the product development process.

The pitfalls of the fixed cost model are as mentioned below:

  • Product development is an ongoing process from its’ inception to its’ commercial use in the market.
  • It is hard to provide the software product on the fixed deadline.

Product development is an ongoing process from its’ inception to its’ commercial use in the market:

The product development process is an ongoing process. The client comes to the web dev company with his requirements and once the product building process begins, the client also begins to provide his requirements. If the web dev company provides the client the fixed cost development model, the web development company may end up losing a project from their hands or the client may not provide the required inputs or the feedback to the software development company which increases the overall costing of the product development process.

Sometime when development is in progress, market trends may get change and we have to change our product accordingly or might be possible new ideas take place at the mid of development which impact fix cost budget. So it’s hard to maintain cost each and every stage of a change request.

It is hard to provide the software product on a deadline:

As the software product development process is going on from start to finish, in between the development process the client may come up with tricky requirements which are hard to fulfill and need a bit of time for research & development purposes. The web development company also has to work out all the stages of the product development life cycle to implement that specific requirement from the client which may turn out to be such a way that the deadline of the product launching may have to be overlooked. So it is advisable to the product development companies and the client to be somewhat flexible in their approach regarding the deadlines of the software products.


The solution to the problem discussed above can be a combination of the agile and scrum methods used for product development. The product should be developed through the iterative and incremental methods meaning the software product development teams working simultaneously as per the client requirements and the testing of the products should be done periodically as this helps in stabilizing the software product development process. The software development team also provides timely updates to the client regarding the product development which helps the clients tracking the progress of the product development.

There are 2 models which help the product development company:

1. Dedicated development model
2. Time and materials engagement model.

1. Dedicated development model : Through this model, the dedicated resources of the product development company work on fulfilling the client requirements.
2. Time & materials engagement model : It works on the effective utilization of the materials provided by the end user over a specific period of time. The software development companies generally get paid for the materials used to develop the product and time they work to develop the product from scratch. Also, the overall budget is calculated, once the product is being developed and used commercially.

In the software product, you need to be flexible to incorporate various useful functionalities which may be used by the clients/users at the end of the development process.

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