At Viget we typically run our projects within a Time & Materials (T&M) pricing model where billing is based on the hours used by the team.
I'm a fan of T&M. Here are three reasons why:
It comes with the territory that requirements may shift halfway through a project. Working under T&M, if we collectively determine that Y is a better path than X, we don't need to terminate the existing agreement and renegotiate a new one. Rather, we can embrace a responsive development approach where we collaborate with the client on an ongoing basis to prioritize features and map out the development path as part of the nature of the working relationship. This flexibility keeps us efficient and nimble.
Our T&M pricing model generally includes a budget cap. This provides clients with cost limitations and us with scope limitations. Both parties are being treated fairly in terms of risk from the onset. This shared risk tends to align interests (we all play nice together :)) and puts the focus on finding the best way to accomplish project objectives under the given constraints.
It's been said that strategy is deciding not to do something. T&M contracts help incentivize clients to identify what's important so key business goals are realized, while allowing lower-priority items to be considered for future iterations.
I'd love to hear what's working (or not working) for others. What are your experiences with the Time & Materials pricing model?