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What is a Fixed Price Model in Outsourcing and the Right Time to Choose One?

A fixed price model aka fixed bid model of outsourcing is an ideal solution for one-time or short-term projects that will last for more than a few months. Giving a detailed and well-defined scope of work specifications explaining the final result of the project delivery to the outsourcing service provider is crucial to the contract.

Pros and Cons of Fixed Price Model


  • There are no over-payments as the whole amount or price tag is agreed in advance.
  • There is no need for supervision because coordinating the development process is done by the service provider. Buyers may also take part if desired.
  • With a fixed-price model, there are no turn-ups. It works by having a signed statement describing the terms and the timelines.
  • There is no doubt and need to border whether the working hours are used efficiently or not. Outsourcing service providers are normally encouraged to deliver within the shortest time limit possible without compromises on the quality.
  • The process involves low or no risk, but you must play it safe. In other words, you have a right to request for revisions or not even pay, if the project delivery doesn’t meet the agreed SOW specifications, as specified in the agreement.


  • It takes some time to prepare. As a matter of fact, be prepared to spend up to 2-3 weeks to document all the requirements and deadlines.
  • There is minimal control of the process. However, you can make your adjustments but the entire management is done by the service providers.
  • It is deficient in communication as a fixed model doesn’t entail regular interactions between the buyer and provider. All the same, you will not be left in the dark concerning what is happening.

When to Select a Fixed Price Model

This will depend on your response to some questions like:

  • Can you wholly describe the scope of work and the stages of project milestone achievements?
  • Will, it did not take more than a few months to complete the project?
  • Is it possible for you to leave the project management functions in the hands of the representative of the development team?
  • Can you agree on the terms of the workflow review?
  • Is it not likely for you to make any important changes in the final version of the project delivery?
  • A fixed price model is actually for you if your response is “YES” to most of the questions raised above.

Daven Michaels is a New York Times Best Selling Author and CEO of premiere global outsourcing company, 123Employee. The company employs hundreds of young bright individuals on three continents. His International event, Beyond Marketing Live! inspires entrepreneurs to build & grow their business with revolutionary new theories and systems allowing them to design the business and personal lifestyle of their dreams.

One Response to “What is a Fixed Price Model in Outsourcing and the Right Time to Choose One?”

  1. Eye-opening. I have had a “job”…as a freelance. Never thought me doing the outsourcing :) Thank you for that

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