When we quote for a project we offer clients two options with regards to pricing: a fixed price or a daily rate.
In this article we will try and break down those two options…
Option 1 - Daily rate
Daily rate often works best as it gives flexibility on both sides to increase/decrease scope as we progress through the build. Clients who do opt for this approach receive a rough (but not that rough) price estimation before work commences and continual updates on progress. This means no surprises at the end of the project.
However, some clients do not like the idea of this approach for budgeting reasons and we can appreciate this.
Option 2 - Fixed price
The fixed price gives clients peace of mind that it will cost £X and they can budget for that. However, it does mean that we (the agency) have to be quite rigid with any change requests and anything we feel was not in the original brief has to be discussed, priced, and agreed upon.
The difference in final cost
Generally, the final cost works out the same or in the same region regardless of the approach. But, it is our belief that sometimes, with fixed pricing, the client can end up with less for the same fee as daily-rate based pricing. Due to the nature of web development, it is often extremely difficult to correctly estimate how long a piece of development work will take before you start it. Therefore the agency has to often expect the worst case scenario and price accordingly.
If you think a project may take between 10 and 15 days you have to offer a fixed price of 15 days × day rate or risk losing money. You could hedge your bets and say 12-13 days but if the project runs long, the agency loses out.
The advantage of daily-rate pricing (for everyone)
Whereas, with daily-rate pricing, the agency can set a spread of time say 10-15 days at £x per day and then they can communicate with the client as to how the project is going and together items of work can be added or removed from scope in order to make the deadline or hit the budget.
If, after 3 days it’s apparent that the project will only take 8 days, then the client can be told of this. Also, if it seems like the 10-15 day estimate was too low, this can also be communicated early to the client.
The pitfalls of daily-rate pricing (for clients)
Of course, daily-rate pricing can be open to abuse. Clients may have been burnt by former agencies/freelancers who work deliberately slowly in order to increase the number of days worked. This scenario can be avoided by being as transparent as possible with the client and both agreeing deliverables and a deliverables schedule early in the project.
It also requires projects being split into small chunks because it can be hard to run daily-rate pricing on projects that span many months or years.
Further reading
Read how we estimate our web development projects to ensure we get the estimates right.