Software Development for Startups - engagement models - software pricing - project development - advantages and disadvantages of engagement models - fixed price - Time and Materials - FFF — Fixed time, Fix budget, Flex-scope - Dedicated Team - Milestone based model

1. Software Development
for Startups:
How to Choose the Right Engagement Model
Alex Volik
CCO | We help start-ups and innovation

2. What is
an engagement model?
Software development for startups is a
cooperation between the startup founders or
managers and an IT company.
The engagement model is a clear plan of
action, a structure that shapes the
relationship between the customer of the
software solution and the supplier, whom the
customer chooses for the duration of his
project.

3. What impacts
the choice
of interaction model?
Choosing an engagement model, the parties
are guided primarily by the goals, timing
and scope of the technological project, its
features, as well as financial capabilities.
Engagement model allows you to identify
the framework and mechanism of
cooperation, coordinate goals around the
overall result, provide a level of control,
responsibility, flexibility, and determine the
pricing model.

4. The most popular engagement models in software
development for startups:
● Fixed price
● Time and materials
● FFF: Fixed time, Fix budget, Flex-scope
● Dedicated team
● Milestone based model

6. Engagement Model -
Fixed Price
Perfect for small to medium sized project.
You don’t pay more for a software solution
than was agreed before its development. In
order to achieve this, careful planning is
necessary. Before project creation be sure to
tell the software company in detail about all
the requirements, specifications, resources
and deadlines, as well as planned technical
documentation.

7. Engagement Model -
Fixed Price
Advantages
● The cost of startup project development
remains fixed for the customer
● Software product release dates will not
change
● The project is easy to manage, as it does
not need client control
● Price remains unchanged if
requirements stay the same
● Clearly defined specifications and
simple workflow
● The future result is predictable

8. Engagement Model -
Fixed Price
Disadvantages
● Long preparation time
● Requires detailed documentation
before the start of work
● Cannot be applied to large and complex
projects
● When it's necessary to make changes,
all parties agree on them and draw up
an additional agreement to the contract

9. Engagement Model -
Fixed Price
Disadvantages
● Long preparation time
● Requires detailed documentation
before the start of work
● Cannot be applied to large and complex
projects
● When it's necessary to make changes,
all parties agree on them and draw up
an additional agreement to the contract

11. Engagement Model -
Time and Materials
It has more flexible deadlines and a budget,
and used for complex long-term projects.
The client constantly participates in the
project, making decisions based on the
priority and order of developing product
functions. The customer can easily make
changes to the requirements at any stage of
the project.
Client pays for actual hours spent on
development and the amount of work
performed, having previously agreed on
hourly rate.

12. Engagement Model -
Time and Materials
Advantages
● Customers are free to make changes at
any stage of development
● Possibility of simple and quick start - no
long preparation and detailed
documentation are required
immediately for the entire project
● Constant cooperation with customer at
all stages of the project
● Customer pays for completed tasks
● Focuses on Agile development
methodologies

13. Engagement Model -
Time and Materials
Disadvantages
● It’s impossible to estimate exactly how
much the project will cost
● It’s impossible to evaluate exact project
deadlines
● Constant monitoring by the client
● Great amount of time spent on
coordination through phoning and
messaging in chat

15. Engagement Model -
FFF: Fixed time,
Fix budget, Flex-scope
A feature of this model is in two
commandments, which under no
circumstances must be violated - budget and
timelines.
When client wants to make some kind of
innovation, executing company monitors
what change it will make to their budget. If
the budget is exceeded, the team transfers
the amount of work to the second release or
discards that idea in order not to exceed the
costs and development time.

16. Advantages
● Effective when you need to develop a
quality product for a limited budget
● The price and quality of project
development does not change when
adjusting the scope of work
● Clear deadlines and focused on results
● Monitoring the work process both on
the part of the client and by the
contractor
Engagement Model -
FFF: Fixed time,
Fix budget, Flex-scope

17. Disadvantages
● The software company needs to plan
workflow carefully and stay flexible
● Close customer collaboration required
Engagement Model -
FFF: Fixed time,
Fix budget, Flex-scope

19. Engagement Model -
Dedicated team
Сustomer and service vendor agree on
product requirements, workload, and time
needed for completion. Meanwhile, an
outsourcing company provides a Dedicated
Team of IT-specialists who meet their client's
demands. The Dedicated Team may include
developers, designers, and project managers.
This separate team “dives head first” into the
current project and works exclusively on it.

20. Engagement Model -
Dedicated team
Advantages
● Good for large complex projects
● The most reliable engagement model
for customers
● High work efficiency, as the team is well-
acquainted with the project
● A personal, quality-oriented team that
works on a long-term basis
● The client fully controls and manages
the project
● Customer saves on infrastructure

21. Engagement Model -
Dedicated team
Disadvantages
● The client invests a significant amount
of time and money in team
management
● Possible contentious issues and
misunderstandings during the process
● The most expensive existing
engagement model

23. Engagement Model -
Milestone based model
This type of contract is suitable for long-term
projects where the scope of work and
technical requirements are defined. The
project is divided into several parts, so-called
milestones, which, according to priority, are
performed by the software supplier
company. Client gradually pays for each
successfully completed part of the work, and
their team, meanwhile, is taken for the next.

24. Advantages
● No need to pay immediately for the
entire project
● Quick start option
● Transparency and predictability of
results
● Customer pays for completed individual
parts of the project
● A high quality work of team
● Measurable and achievable result
● Minimal risks due to visible monitoring
of task performance
Engagement Model -
Milestone based model

25. Disadvantages
● Approximate budget
● Since planning and execution of the
project is approximate
● There is no fixed price. All milestones
have different costs
● Possible lengthy disputes between the
development team and the customer in
the event that something
Engagement Model -
Milestone based model

26. We hope that this review has helped you get a better idea
of the popular engagement models in software solution
development.
Finally, you can make an informed decision on which
model is tailor-made to create precisely your business
project.
Learn more about software engagement models in our
article on LinkedIn