Fixed Price

A pricing model where the client pays a set price for the completion of a project (product or service), regardless of how long it takes to complete. The advantage to the client is that the costs are predictable. The advantage to the vendor is the possibility of completing the project in less time than originally estimated. The disadvantage to the client is that the market price for such work might decrease over time and the client will be saddled with the relatively higher costs for the term of a contract. The disadvantage to the vendor is that true costs may escalate over time to the point that there is not enough revenue to cover costs.

This model is best when the specifications and scope of the project are clear to both parties. This model provides maximum incentive to the vendor to control costs and perform the services as effectively as possible.

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