3 popular software development billing - engagement models

3 popular software development billing & engagement models

Published on: 18 Sep 2018

By Vinod Subbaiah

One size does not fit all. Similarly, one billing & engagement model won’t work for every business. You want to choose the right one that suits your unique business needs. Here are the three engagement models that are typically offered by seasoned software service providers (software company):


This model works for projects where the project scope is limited and clearly defined.

Here’s how it works:

●   You provide a statement of requirements to the software company.

●   They refine the requirements and fill in on any missing gaps by having meetings/discussions with potential stakeholders on your side.

●   They then present you with a more comprehensive requirement document for approval.

●   Once you approve, they present you with a fixed cost quotation and a project timeline.

●   Development efforts get kicked off once the business requirements, cost and timelines are mutually agreed upon.

Typically, Waterfall SDLC approach is followed with this model. However, in this approach, you have limited flexibility to make changes mid-way, and you are better off if you are able to communicate all your business requirements clearly at the outset. But on the brighter side, there is transparency during the project, the software company sticks to the set budget and the cost escalation risk factor is low.

Also, regular updates are provided to you by the project management team to maintain complete transparency during the tenure of the project.


When you have a project with constantly changing requirements that you are unable to clearly define the scope of work ahead of time, T&M billing model works better. You can work with your software development firm to set a monthly retainer based on your resource bandwidth needs. This way, the software team can optimize the utilization of resources and also respond promptly to product enhancement, support and troubleshooting requests from you. The resource bandwidth allocation can be reviewed and adjusted periodically (say, once in 6 months) to ensure that it continues to meet your business needs.

With this model, you pay an hourly rate, which is proportional to the skill level of the resources deployed on the project. This model usually works best for projects that are either in the discovery phase, or in the maintenance & support phase, that comes immediately after project launch.


Basically, in this engagement model, the software company that provides you the service works as an extension of your in house technology team. They put together a tailored resource team consisting of developers, testers and project managers. This skilled team of engineers and project managers are dedicated exclusively to your company projects for a specified period (usually, 6 months to 1 year). All of this is done based on your project requirements.

Some of the key benefits of this approach is that the budgets stay stable and in case of production issues, resources are available round-the-clock to fix the problem and provide support. In this model, the outsourced dedicated team and in-house developers work in tandem using well-structured communication protocols and processes, led by project managers on both sides.

You can read more about the benefits of a dedicated software development team in this post here.

Choosing the right engagement model is as important as choosing the right software development team for your project.

Vinod Subbaiah