T&M vs fixed price
When which model — economics and risks
Input
T&M: client pays actuals — flexible, but client bears overrun risk. Fixed: agency bears risk, adds 25–40% buffer. Fixed works with clear spec and team experience; T&M — with uncertain scope. Hybrid: fixed discovery + T&M dev.
Comparison
- T&M (estimate)
- $16 000
- T&M (with scope growth)
- $18 400
- Fixed (T&M × 1.35)
- $21 600
- Agency risk at fixed
- $2 400