The best methods of settlement between agency and client
The cooperation between the agency and the client has many points of contact, which must be established at the very beginning of taking action. One of the most important issues to be discussed is the settlement method. It should be chosen so that each side satisfied. Otherwise it will affect the effectiveness of the whole cooperation.
How to choose the right solution? When you’re valuing websites and the e-commerce systems, you can base on the two most popular methods: fixed-price or hourly settlement (time !$#amp#$! material). Nothing is perfect so each of these methods has its own advantages and disadvantages. When you decide on one of them you have to remember that a specific choice will involve a specific method of project implementation. Which model should you choose? Check what is going to be the most suitable for you.
FIXED-PRICE – VALUATION OF THE WEBSITE AND ONLINE STORE
Valuation at a fixed-price is the most commonly used method in the implementation of the project. The sales process begins with collecting all relevant information from the client in the form of a brief and then consulting these data with the agency and determining the details of cooperation. The moment of consultation is extremely important and requires an expert approach of agency’s employees to best fulfill the role of a professional adviser to your client.
It is worth to remember that the client is not always familiar with the software creation so you will often need to explain the functioning of e-commerce platforms from scratch. This is why you need to establish specific objectives and scope of performed activities at the consultation stage. In the case of e-commerce and other websites, you often have to deal with difficult implementations. Online reality constantly changes and requires quick change management in the system. For this reason, it is necessary to ensure that you define them in detail. For example, it is worth to determine what means a ready and a fully functioning e-commerce service. Is it a platform with already introduced content or does the client have to create the content on his own? Is the ready online store running on agency’s test server or is it an already installed and tested application on the target client server? There are many other questions that you will have to answer at the stage of consulting the brief.
ESTIMATION OF RISK – LIMITATION OF UNCERTAINTY RELATED TO THE VALUATION
Risk estimation consists, among others, on establishing the agency’s safety margin. This is particularly important with a high level of generality while defining requirements in relation to the system. Often there is a 20 to 50% of supply in its components for unforeseen situations that may suddenly occur.
How to avoid unspecified requirements and reduce the level of possible risk? Think about the questions you want to ask the customer before you present him your brief. Construct them so the answers given will leave no doubt about anything. The best way to do it is a form of a questionnaire which you can discuss at the consultation stage or fill it together during the meeting. It is worth then to allocate a part of budget for the pre-design phase as well as for technical and functional analysis. As a result, a functional analysis of the system will be created. It will contain a very detailed description of the options required. At this stage you can also perform an integration analysis with external system as well as data migration from the previously used solution. If all of the elements are included in your overall arrangements, it will be easier for you to evaluate the whole project.
ADVANTAGES AND DISADVANTAGES OF FIXED-PRICE METHODS
The fixed-price evaluation is the most common solution that is being used on the Polish market. However, it has numerous limitations that are important especially from the agency’s perspective, for example:
- A relatively long time to be spent on pre-implementation project analysis – functional and technical.
- The need to execute a specific system in advance. As a result, the project is not very flexible and it is difficult to make changes while the project is running.
- The need of an extensive knowledge of the client, who must know exactly what he expects and what is the expected final result.
Such limitations make the fixed-price valuation primarily applicable there where the most important feature is not the system’s innovation and where rigid requirements are defined in advance, for example when creating e-commerce stores. However, if the project requires more non-standard solutions and you can not predict in advance what the final result will be, it is better to use a different method of settlement.
TIME & MATERIAL – A FLEXIBLE PROJECT VALUATION MODEL
When you start to create an advanced project that is very innovative, undefined, and during its creation it may require constant customization and implementation of changes, as a method of accounting, it is better if you choose the time method !$#amp#$! material. This type of approach assumes the settlement for each hour of work of the agency’s team on a given project. The service is calculated at the end of the month based on the numbers of hours spent on the project and the settled hourly rate. Thanks to this solution, both the agency and the client benefit.
- It is possible to start the work quickly, before determining the final appearance and the work of the system.
- The project is very flexible for changes that can be made at any point of its creation.
- The price of the project may turn out to be lower than for the fixed-price method as there’s a limited risk on the agency’s side.
However, like in the previous method, the time & material has its disadvantages. A common problem, that is difficult to be understood by the client, is the inability to determine the final effect and the costs incurred in advance. This approach also requires a strong trust in the agency and high customer awareness, which must be convinced that it puts its project into professional hands. The type of settlement method is more common among foreign clients than polish ones.
FIXED PRICE VS TIME & MATERIAL – WHICH METHOD TO CHOOSE?
The fixed-price methodology uses cascading models – waterfall. They assume the implementation of successive phases of the project, without going back to previous completed stages. However, this is not a necessary requirement, and in this case it is also possible to retain more flexibility, eg using the Agile approach, however in its somewhat limited form.
The time & material model uses agile methodologies in the Agile type (Scrum and XP) and incremental development, i.e. growing programming. The work consists of cyclical meetings of the whole team working on a given project and determining subsequent works to achieve the final result.
Which settlement method should you choose? The choice is not always simple, because both models bring certain benefits, but they also carry some risks. It is worth, however, suggest the following indicators:
- TYPE OF A PROJECT
If the project is predetermined and has a lower level of innovation.
Hourly and material settlement – for a project with high volatility and innovation.
- PRE-PRODUCT COSTS
Fixed price (fixed-price) – a long time for analysis before project implementation.
Hour and material settlement – short time or lack of time for analysis before project implementation.
- FLEXIBILITY FOR CHANGES
Fixed price (fixed-price) – low flexibility for changes during the project.
Hour and material settlement – high flexibility for changes during the project.
- NUMBER OF RISK CONTAINED IN THE PRICE
Fixed price – the need to provide a safety margin for any risk that the price of the project may raise.
Hour and material settlement – no risk on the part of the agency, which results in a lower valuation for a single man-hour.
- WAYS OF PROJECT MANAGEMENT (METHODOLOGY)
Fixed price – operation according to the waterfall and Agile method
Hourly accounting (time & material) – operation in accordance with agile agile methodologies
- KNOWLEDGE AND CUSTOMER AWARENESS
Fixed price (fixed-price) – the need to have a large knowledge and skills to determine the final appearance of the project by the customer
Hours and material – less knowledge about determining the final design of the project.