Should I pay fixed price or hourly for software?
Pay a fixed price when the scope is small, clear and unlikely to change; pay hourly, also called time and materials, when you expect to learn and change course as you build. Many projects mix the two: a fixed price per milestone for well-defined pieces and hourly work for the rest.
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What each model actually buys you
A fixed price moves the risk of the estimate to the vendor, so vendors add a buffer and guard the scope closely. Every change becomes a change request with its own price. That is fine for a clear, stable scope and painful for a new product where you will learn from users.
Hourly billing moves the estimate risk to you but keeps you flexible. You can reorder priorities every week and stop when the product is good enough. It needs more attention from you: a clear backlog, regular demos and a budget you track.
How to choose
- 1Scope written down, signed off and stable: fixed price.
- 2New product, unknown users, or AI features whose quality you must test: hourly, with a budget cap.
- 3Large build with clear phases: fixed price per milestone, with each milestone priced once the one before it is done.
- 4Ongoing work on a live product: an embedded team on a monthly retainer.
How OceanLab prices
OceanLab prices product builds and embedded engineers either outcome-based, paid per milestone, or hourly at $30-50/hr depending on role and seniority, whichever suits the client.
Either way, we start with a clickable prototype so the scope is visible before the production build is priced, which makes both fixed milestones and hourly budgets more accurate.
Check it for your case.
Common follow-up questions.
Is fixed price cheaper?
Not usually. It is more predictable. The vendor prices in the risk, so you pay for certainty, and changes cost extra.
How do I keep an hourly project under control?
Set a budget cap per month or milestone, ask for weekly demos and time reports, and keep a prioritised backlog so the most valuable work is done first.
What is outcome-based pricing?
Payment tied to agreed outcomes, usually milestones with acceptance criteria. You pay when each piece is delivered and accepted.
Related questions and guides.
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- RAG vs fine-tuningComparison
- GlossaryEvery term, in plain words.
- Fixed price vs time and materialsFree tool
- MilestoneGlossary
- RetainerGlossary
- Talk to OceanLabTell us about the build and we reply by email.
