Fixed-price vs time-and-materials
Flat fee for a defined outcome versus billing the hours you actually burn. The choice decides who pays when the work takes longer.
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What it is
Two ways to price the same work, and the real difference is who eats the risk when it takes longer than anyone thought. Fixed price: one number for a defined outcome. You carry the estimate risk, the client gets budget certainty, and your margin comes from being faster than your estimate. Time and materials: you bill actual hours plus pass-through costs. The client carries the risk and gets flexibility, and you get paid for every hour but need trust and clean time tracking.
Go fixed price when the scope is genuinely knowable and you have built something like it before, and pair it with tight acceptance criteria, an exclusions list, and a change order process. Go T&M for discovery, R&D, maintenance, or any client whose requirements will be discovered in flight. A common middle ground is T&M with a not-to-exceed cap, which gives the client a ceiling while you still bill reality.
Gotcha: fixed price without a change order habit is just T&M where you pay for the extra hours. The number that tells you which model actually worked is your effective hourly rate: total fee divided by hours really spent, including the calls, the revisions, and the invoice chasing. Plenty of proud flat-fee projects turn out to have paid less than the hourly work they crowded out.
Ask AI for it
For the project described below, compare pricing it fixed price versus time and materials. Give me: an hours estimate with an optimistic, likely, and pessimistic range; a fixed price built from the likely case plus a stated contingency percentage; a T&M version with hourly rate, billing increment, and a not-to-exceed cap; and the effective hourly rate each model produces in all three scenarios. Then recommend one, name the specific unknown that makes it the right call, and write the two paragraphs of contract language for the model you picked.