When you are looking into bringing a professional IT (Information Technology) support service on board, you need to choose the pricing structure you would like to use.
A Fixed Price contract offers the advantages of cost certainty, allowing you to pay no more than quoted for the duration of the project.
A Time and Materials contract sometimes referred to as T&M, charges you for the variable number of hours you end up using IT. This gives you greater flexibility, but you also have the risk of the total bill far exceeding the initial estimate.
Both pricing structures are commonly used, however, one may be better for your business IT needs than the other. This article will help you determine which pricing structure is right for you by looking at some of the advantages and disadvantages of each.
What are Time and Materials or T&M Contracts?
T&M Contracts are frequently used for projects that are very hard to provide an accurate estimate for. They are also utilised for projects that have a variable schedule. This latter point is especially relevant for IT services, as it is nearly impossible to predict how often you will need services over a given period.
In general, T&M Contracts favour vendors. The owner assumes the risk that the vendor will need to spend more time with them than initially quoted and must pay for the difference, regardless of the estimate included in the contract.
A contractor could also make less than the initial quote, but they also invested less time and materials than they thought they would have to in that case. Thus, the downside for the vendor (doing less work and receiving less money as a result) is nowhere near as bad as it is for the owner to receive an unexpected bill.
That said, at Catalyst Computers we want to provide the best value of service for your business, so we’re open to negotiate a more equitable arrangement that suits your budget and needs. Here are some of the items that we can be flexible on in T&M Contracts:
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Labour Rate
This is how much we charge per hour and includes all personnel, including those in administrative positions. If you have a larger company with a large anticipated need for IT support, we would be happy to lower this hourly rate to secure your business.
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Material Mark-Up
Like with many other companies, there is a markup on installments, hardware, and other components added to get your systems up and running again. The usual markup is 15-35 percent depending on the item, however at Catalyst Computers, we can flexibly work to reduce that margin if that does not fit into your budget.
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Not-To-Exceed
This is one of the most important riders we offer to our customers. A Not-To-Exceed clause in a T&M Contract caps how much money you are liable to pay even if your need for IT services far exceeds our initial quote. This significantly decreases your share of the risk.
Some clients also appreciate that a Not-To-Exceed clause improves efficiency by ensuring that the contractor never intentionally dawdles to rack up more billable hours. We would not do that, but some unscrupulous IT support services do so we understand the concern.
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Maximum Labour Hours
This is similar to a Not-To-Exceed clause but covers only labour hours instead of the total bill. Its primary purpose is to ensure contractor efficiency in the manner described above.
So, Which is Best? Time and Material Contracts or Fixed Price?
Ultimately, the decision between Fixed Price and T&M pricing models comes down to your business’ IT needs. The best way to determine which one is right for you is to ask yourself the series of question below:
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Do You Know Exactly What You Need?
Fixed price contracts depend on knowing exactly what you want to be done so that we may provide an accurate estimate. If you are unsure of the scope of your project, it is unreasonable to expect us to come up with a workable bid. A “discovery” period under a T&M Contract is probably in your best interest until all parties involved have a greater understanding of what you are looking for. At that point, you have the option of switching to a fixed pricing model.
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What Is Risk Management Worth To You?
Fixed Price Contracts offer you the security of a set price that will not be exceeded. That is easy to budget for, but you may pay a premium for the convenience. For instance, we might quote a job at $300,000 as a fixed price but only $250,000 under a T&M model. The reason why is simple: we need to overshoot on a fixed rate in case something unforeseen goes awry, but the nature of T&M takes care of that possibility for us.
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How Important Is Flexibility To You?
If you want the flexibility of accessing IT support whenever you need it, a T&M pricing structure allows you to do so. We are charging you by the hour, so you can largely dictate what we do on your dime. It is also much easier to change what you want to be done on the fly under a T&M model, as the contract does not set anything in stone.
Fixed price contracts tend to involve us working on our own to achieve the results you specified, so you lose some control of the process. Changing anything requires renegotiation and a few added fees, compromising the flexibility of the arrangement consideration. There are ways to make fixed pricing structures more flexible, but in general T&M arrangements give you much more freedom.
A Quick Recap – Fixed Price vs Time and Materials
To sum up, fixed pricing models are easy to budget for and minimise your risk at the cost of flexibility. Time and Materials arrangements are much more flexible and cheaper if everything goes according to plan, but riskier if your needs exceed the quoted estimate.
For the Best Value Pricing for IT Services – Talk to Catalyst Computers Today
At Catalyst Computers, we understand that getting the best value out of your IT services is front of mind for your business. Our high level of expertise and processes allow us to price our rates competitively, and are tailored according to your specific IT needs. That being said, regardless of what type of IT support service you’re after for your business:
- We don’t put anyone on contract
- We don’t charge a monthly retainer
- We don’t charge a call out fee
