If your business is searching for managed information technology (IT) providers, you have a major decision to make about how you should negotiate IT consultant rates and contract terms. There are two models that can be used: (1) fixed price and (2) time and materials (T&M). Both options have pros and cons depending on the circumstances. So, how will you perform an evaluation to decide which is right for your business?
Evaluating Fixed-Price IT Consultant Rates
As the name states, in a fixed-price contract, you and your chosen IT consultant agree on a scope of work, the vendor fulfills the contract, and you pay the agreed upon vendor rate until the project is over. This arrangement is perfect for certain types of projects. For the IT consultant, everything hinges on providing an accurate estimate of the hardware, software, services, time, and an estimated project duration, typically based on milestones. For these reasons, fixed price IT consultant rates are most effective for:
- Small projects with parameters that are unlikely to change
- Managed service providers (MSPs) that have completed many similar projects
- Businesses that have a fixed budget for one-time projects or ongoing needs that won’t drastically vary from month-to-month
Evaluating Time and Materials (T&M) Rates
With a T&M contract, your business pays the IT consultant for all the time, hardware, software, services, and costs that it’s staff incurs throughout the course of your engagement. T&M pricing is most effective for:
- Large projects or projects that require a diverse scope of work
- Customers that require flexibility or may need to change feature requirements after the project has initiated
- Projects that don’t have a strict timeline for completion or finite start and end date
Why Choose Fixed Pricing?
As the client, why should you choose fixed pricing over T&M? The biggest reason is your budget. You will have an upfront understanding of the exact services, products, expectations, and costs associated with your project. Ironically, costs can also be a drawback. To account for an increased level of effort and rising prices for hardware or software, IT consultant rates are typically cushioned when providing a project estimate. In the end, however, if you’re running a small or medium-sized business, the comfort of knowing exactly what you’ll be getting from your IT consultant, and how much you’ll pay for it, may be worth the reduced flexibility of a fixed-price project.