Every IT project has to answer one question before it starts: who pays if it takes longer than expected? Fixed price and time and materials are the two basic answers. For a new agency working with a white-label delivery partner, the choice also decides how much risk you carry in the middle, between a client who wants certainty and a partner who wants to be paid for the hours worked.
How fixed price works
You agree a defined scope and a total price. If the work takes more effort than estimated, the supplier absorbs the cost. If it takes less, the supplier keeps the difference. The client gets a known number to put in a budget.
Fixed price depends entirely on how well the scope is written. It needs precise deliverables, testable acceptance criteria and a change request process for anything new. See how to write a statement of work.
How time and materials works
The client pays for the time actually spent, at agreed rates, plus any agreed costs. Scope can change as the project learns. The client carries the cost risk, and in exchange gets flexibility and visibility into where the time goes. Rates may be per role or a single blended rate.
T&M needs trust and reporting: regular timesheets or effort reports, a running forecast of remaining work, and often a cap or a budget alert so the client is never surprised.
Side by side
| Factor | Fixed price | Time and materials |
|---|---|---|
| Who carries overrun risk | Supplier | Client |
| Client budget certainty | High | Lower, managed with caps and forecasts |
| Flexibility to change scope | Low, every change is a change request | High |
| Effort needed before signing | High: detailed scope and estimate | Lower: agreed rates and a way of working |
| Best for | Well-understood, well-defined work | Evolving products, research, ongoing improvement |
What changes when you work white-label
In a white-label model there are two contracts: you with your client, and you with your delivery partner. The pricing models do not have to match, and the combination decides where risk sits.
- Fixed to the client, fixed from the partner. Your margin is locked in if both scopes match exactly. The risk is a gap between the two documents. Copy scope and acceptance criteria word for word.
- Fixed to the client, T&M from the partner. The riskiest combination for you. If the work overruns, you pay the partner more while the client pays you the same. Only use it with a firm partner estimate, a cap, and close tracking.
- T&M to the client, T&M from the partner. Your margin is the difference in rates. Low risk, but you must pass through accurate effort reporting, under your brand.
- T&M to the client, fixed from the partner. Rare, and usually only for well-defined parts of a larger flexible engagement.
How to choose
Choose fixed price when
- The client can describe what they want in detail, or you have done very similar work before.
- The client's procurement needs a single approved number.
- You and your partner have estimated together and both trust the estimate.
Choose time and materials when
- Requirements are still being discovered, as with a new product or an MVP.
- The work is ongoing improvement or support, where a retainer with an hours allowance is common.
- Integration with systems you have not seen makes any estimate a guess.
Or split the work
A practical middle path is a short, separately priced discovery phase on T&M or a small fixed fee, followed by a fixed-price build once scope is clear. The client gets certainty for the big spend, and you avoid committing to a price before anyone understands the problem. Another option is fixed price per milestone, re-estimating each milestone as the previous one completes.
What the SOW must say under each model
The pricing model changes which parts of the statement of work carry the weight.
Under fixed price
- Scope and exclusions in detail, because anything not written down will be argued about.
- Acceptance criteria per milestone, with a review period and a limit on rounds of feedback.
- Assumptions the price depends on, such as the client supplying content by a date or an external system behaving as documented.
- A change request process, including how changes are priced.
Under time and materials
- Rates per role, or a blended rate and the team mix it assumes.
- How time is recorded and reported, and how often.
- A cap or budget alert, and what happens when it is reached: stop, pause for a decision, or continue with approval.
- Priorities rather than a fixed list, so the client decides what to build next with the budget left.
Explaining the choice to a client
Clients new to software often ask for fixed price because it feels safer. It helps to explain the trade honestly: a fixed price for an unclear scope means either a large contingency built into the price or a long list of change requests later. Offering a short discovery phase first usually lands well, because it turns an unclear request into a scope both of you can price with confidence. For ongoing work after launch, a monthly retainer is easier for most clients to budget than open-ended hours.
Protecting your margin either way
- Estimate with your partner before quoting. Never quote fixed price on an estimate your delivery partner has not reviewed. Presales support exists for this.
- Include your own costs. Project management, account management and your review time are real costs. Your gross margin is what is left after them, not just the difference between your price and the partner's.
- Keep a contingency on fixed price. Size it to the uncertainty you can see, and say in the SOW what assumptions the price depends on.
- Report regularly on T&M. Weekly effort and forecast, so a budget conversation happens early.
- Use change requests on both sides. A change your client approves should reach your partner at a price you have already checked.
For a wider look at pricing structures, including dedicated capacity and cost-plus models, read white-label software development pricing explained.