Fixed Cost vs. Time & Materials: Aligning Incentives for MVP Development

Fixed Cost vs. Time & Materials: Aligning Incentives for MVP Development

One of the first questions a founder asks an agency is: "How much will my app cost?"

The answer depends heavily on the contract model. The two industry standards—Fixed Price and Time & Materials (T&M)—create vastly different incentives. At Infin8y, we believe the traditional models are broken, which is why we often advocate for a hybrid "Milestone-Based" approach.

The Flaw in Fixed Price

Fixed Price sounds safe. You pay $50k, you get an app. But software is not a physical product; it is a discovery process.

• The Agency's Incentive: Do the bare minimum to meet the spec. Resist all changes because they eat into profit.
• The Founder's Risk: You realize halfway through that users want feature B, not feature A. But the contract says Feature A. You are stuck building the wrong product.

The Flaw in Time & Materials

T&M is flexible. You pay for hours worked.

• The Agency's Incentive: Work slowly. The longer it takes, the more they make.
• The Founder's Risk: Uncapped budget. A 3-month project drags into 6 months.

The Infin8y Approach: Milestone-Based Delivery

We prefer a model that aligns incentives: Fixed Price per Sprint/Milestone.

1. Define a Milestone: E.g., "User Authentication & Onboarding."
2. Fixed Cost for that Value: We agree on a price for that specific outcome.
3. Delivery Guarantee: We don't bill until the milestone is signed off.

Why this works

• Flexibility: We can change the next milestone based on what we learned in the current one.
• Cost Control: You know exactly what the next 2 weeks will cost.
• Velocity: We are incentivized to deliver efficiently to unlock the next payment.

Conclusion

Your contract defines your product's destiny. Don't sign an agreement that pits your vendor against you. Look for a partner who is willing to share the risk and reward of delivery.