Hourly Versus Fixed-Price Product Design. Which is the Best Option?

As companies continue to display a greater need for product UX design services, we are also witnessing growing concerns among leaders regarding product UX design – and a core pain point is the pricing strategies adopted by most agencies.

Many firms opt for flexible pricing plans when selecting a design agency. This leaves a lot of room for design agencies to overcharge.

Open-ended pricing can be even worse as it allows design agencies to take projects beyond the client’s budget. They propose an hourly rate and extend the project to as many hours as possible, increasing product design costs for clients.

Disadvantages of hourly pricing for product design

One of the core concerns with hourly pricing in UX design projects is that startup founders are unaware of the final price. Most design agencies only offer an estimate, which they can stretch to fit their own convenience.

Since some business leaders rarely have an in-depth knowledge of the technicalities involved, they don’t decide the scope of their product design work. It often remains undefined, allowing UX design agencies to alter and modify it on the go – yet another way of increasing product design costs.

The result is an open-ended outline for design agencies. They can add multiple additional features to the product that are neither required by the client nor are aligned with its business goals. As a consequence, businesses end up paying more than they should for their projects.

Plus, without a fixed budget at hand, business owners give design agencies too much leverage. This can be expensive for the company since product UX design costs can quickly grow beyond any reasonable estimates they’d made earlier. Simply put, efficiency is no longer beneficial for the agency.

In other words, agencies have an incentive to be wasteful and unproductive – they can add more hours to the project, consequently increasing product design costs for the client.

Now that you understand the cons of the hourly pricing model for product design, let’s look into how its alternative, a fixed-price model, benefits your business.

Advantages of fixed-price product design

A core benefit of fixed-rate product design is that you, as the client, are aware of the final price. You provide a fixed budget for the agency to work with, and they are left with no room for scope creep during the project.

Fixed-rate product UX design is also great for ensuring efficiency during the entire UX design process.

From the design agency’s point of view, being proficient at work and completing the project within the timeline allows them to move on to the next project sooner.

In other words, they can put more projects to bed in a given time than they would in an hourly pricing product design model. That’s because a fixed budget also means fixed deadlines, so there won’t be any undue delays or surprises.

On the contrary, a client can receive the final product within a given timeframe and launch it earlier than the set date. In fact, a study by IBM concluded that faster time-to-market results in a significant increase in profits.

Another benefit of flat-rate product design is that it becomes easier to build consensus about the scope of the project.

Most companies, especially larger organizations, don’t take consensus-building into account. We cannot emphasize the importance of consensus-building enough, especially if cost-cutting is a motive.

When the scope is left undefined, the designers continue to incorporate features, regardless of their utility for the business. In short, an open-ended scope can elevate your UX design costs with features that neither the users nor the company could benefit from.

On the other hand, in fixed-price UX design, companies are sure about the scope of their product. They know precisely what they want – a fixed timeframe as well as a fixed cost.

This leaves no room for the design agency to tamper with the requirements of the project. Plus, if a new idea comes up during the design process, it can be set aside to be added once the pilot phase is complete.

In conclusion, having fixed-price product design keeps developers from straying away from a pre-decided outcome-driven path. It also allows organizations to stay within budget while maximizing the efficiency of the project.

In a nutshell

When you sign up with a product design agency, trusting them with an hourly pricing model may cause you to lose track of the entire process. There’ll even be times when you won’t know what they are doing and how long it will take them to get done. An hourly pricing model is a risky path for any business that values its time and money.

That’s why opting for a fixed-price model is always the best approach. In fact, professional product design agencies like Designial always quote a fixed price instead of providing a vague estimate for their projects.

They keep you well-informed about the progress of your product and allow you to stay in control of the entire project.

If you’re looking forward to building a product that aligns with the scope of your business, book a free consultation today.

Editor's note: This post was originally published in Jan 2020 and has been updated for comprehensiveness.