Fixed fee vs time and materials: pricing client projects

A fixed fee (also called a fixed price) is one agreed price for a defined scope, so you carry the risk of overrun. Time and materials bills the hours worked at agreed rates plus agreed costs, so the client carries that risk. Choose by how clear the scope is.

Much of the client work in agencies, consultancies and trades is priced one of these two ways, or as a blend of both. Neither is better in general. The right model depends on how well both sides understand the work before it starts, and on who is in a better position to absorb surprises.

Fixed fee and time and materials compared

Question	Fixed fee	Time and materials
Who carries the risk of overrun?	You, the supplier	The client
How certain is the client's spend?	Known in advance	Known as the work goes, unless capped
What happens to your margin?	Grows if you work efficiently, shrinks if the estimate was low	Steady per hour, but tied to hours sold
What needs the most care?	The scope description and the estimate	Time records and regular reporting
How are scope changes handled?	Through an agreed change request and a new price	Absorbed as extra hours, with the client's approval
When does it fit best?	Clear, repeatable work	Open-ended, evolving or exploratory work

When a fixed fee works

A fixed fee suits work you have done many times before and can describe precisely: a standard website, a set number of design rounds, a defined audit. The client likes knowing the price, and you are rewarded for doing the work well and quickly.

The danger is an estimate that is too low or a scope that is too vague. Every unplanned hour comes out of your margin. A fixed fee therefore needs a written scope that says what is included, what is not, how many revision rounds there are and what happens when the client asks for more.

When time and materials works

Time and materials suits work where nobody can honestly say how long it will take: early discovery, ongoing support, a project whose requirements will change as you learn. The client pays for the effort actually spent, at rates agreed in advance, plus any agreed costs such as materials, licenses or travel.

The client carries the risk, so they will want visibility. Expect to share time records, report regularly and explain what each block of hours achieved. Clear rates per role or per person help here; the guide to setting rates per team member covers how teams usually structure them.

Hybrids that share the risk

Many agreements sit between the two models. These are the common shapes:

• Time and materials with a cap. The client pays for hours worked up to an agreed ceiling (often called not-to-exceed). Work beyond the cap needs approval.
• A fixed fee per phase. Each phase is priced once its scope is clear, so the estimate is never made too far ahead.
• Paid discovery, then a fixed fee. A short time-and-materials phase defines the work, then the build is quoted as a fixed price.
• A retainer. The client pays a regular fee for a block of hours or a level of availability each month.

How to estimate a fixed fee

1. Break the work down. List deliverables, then the tasks behind each one. Small tasks are easier to estimate honestly.
2. Estimate hours per task. Use time records from similar past projects where you have them, rather than memory.
3. Add a buffer for risk. The less familiar the work or the client, the larger the buffer.
4. Price the hours. Multiply by the rates of the people who will do the work, then sense-check the total against what the result is worth to the client.
5. Write down what is out of scope. This is the line you will point to when a request arrives that was never part of the deal.
6. Agree how changes are handled. A short change request with its own price keeps scope creep visible.

Track time under either model

Even on a fixed fee, record the hours. It is the clearest way to learn whether your estimates hold and which kinds of work quietly run over. Under time and materials, the time records are the basis of the invoice, so they need to be complete and approved before anything is billed.

For the habits that make time records reliable, see weekly timesheet basics, and for the split between work you can charge and work you cannot, read billable and non-billable hours. To compare hours spent against what was planned, tracking a project budget walks through the method, and turning project time into an invoice covers the step from approved hours to a bill.

Frequently asked questions

Is time and materials more expensive for the client?

Not necessarily. A fixed fee usually includes a buffer for risk, which the client pays whether or not the risk happens. Under time and materials the client pays for the hours actually spent, which can be less, or more if the work grows.

What does not-to-exceed mean in project pricing?

It is a cap on a time-and-materials agreement. The client pays for the hours worked up to the agreed ceiling, and anything beyond it needs their approval before the work goes ahead, so both sides keep some certainty.

How do I handle scope changes on a fixed-fee project?

Agree a change process before work starts. When the client asks for something outside the written scope, describe it, estimate it and price it as a separate change request that they approve before you begin.

Should I track time on fixed-fee projects?

Yes. The hours do not change the price, but they show whether the estimate was right and make your next quote more accurate.