Proposals · Compared
Fixed price vs time and materials
A fixed price quote charges one agreed amount for a defined scope, so the supplier carries the cost if the work takes longer. A time and materials quote charges for the hours actually worked at agreed rates plus materials at cost or with a markup, so the client carries that risk. A capped version sets a ceiling on the total.
The choice between them is really a choice about who absorbs the unknowns. Getting it wrong either squeezes your margin on a job that ran over, or loses the job to a competitor who gave the client the certainty they wanted.
Nuwan Madhusanka · Co-founder
4 min read · Published
| Fixed price | Time and materials | Capped time and materials | |
|---|---|---|---|
| Who carries the risk of overrun | The supplier | The client | The supplier above the cap, the client below it |
| Price known at the start | Yes, for the stated scope | No, only the rates and an estimate | A maximum is known |
| What the quote shows | Scope, exclusions and one total | Hourly or daily rates, an estimate, material terms | Rates, an estimate and the ceiling |
| Best when | Scope is clear and repeatable | Scope is uncertain or will change | The client needs a budget but the scope is not settled |
| How it is billed | On milestones or completion | On timesheets and receipts, often fortnightly or monthly | On timesheets until the cap is reached |
The difference in one sentence
Fixed price sells an outcome; time and materials sells effort. Under a fixed price the client agrees to pay a set sum for a described result, and any extra hours the supplier needs are the supplier's problem. Under time and materials the client agrees to pay for each hour at a stated rate and for the materials used, and the total moves with the work. United States federal acquisition rules describe the firm fixed price contract as the one that places maximum risk on the contractor, and the time and materials contract as one to use only when the extent or duration of the work cannot be estimated with confidence.
How the risk shows up in the price
Because the supplier carries the overrun on a fixed price, a sensible fixed quote includes an allowance for what might go wrong, even if it is not shown. That makes a fixed price higher than a good time and materials estimate for the same job when everything goes to plan. The client pays a premium for certainty. On time and materials the rate itself carries the overheads and profit; the federal rules note that time and materials hourly rates include wages, overhead, general and administrative expenses and profit, while materials are charged separately.
When each one fits
Fixed price fits work you have done many times, with a scope both sides can write down: a standard bathroom fit out, a five page website, a set of tax returns. Time and materials fits investigation, repair of unknown faults, ongoing support and early stage software where the client will change their mind as they see results. The capped hybrid fits the common middle ground where the client has a budget limit but nobody can yet describe every task, and many businesses quote a fixed discovery stage first, then time and materials for the build.
Common mistakes
Quoting a fixed price on a vague scope, then arguing about what was included. Quoting time and materials with no estimate, which leaves the client unable to budget and makes every invoice a surprise. Forgetting to define what counts as billable time, such as travel, meetings or rework of your own errors. And capping a time and materials job without saying what happens at the cap: the work stops, the client approves more, or the supplier finishes at their own cost.
Where it shows up in the product
The proposals module builds one pricing table per proposal or quote, with columns for Item, Qty, Unit price, Tax, Discount and Amount and a unit label on each line. A fixed price can be a single line or a few deliverable lines; a time and materials estimate can price labour with hour as the unit and quantity up to three decimals. Price hints in the brief are authoritative, so every rate you give becomes a line at exactly that price, and the terms are written as numbered clauses where the cap and timesheet rules belong.
Questions people ask
Is fixed price cheaper for the client?
Not always. A fixed price includes the supplier's allowance for risk, so if the job goes smoothly the client may pay more than the same work on time and materials would have cost. If the job runs badly, the fixed price protects them. The client is buying certainty, and how much that is worth depends on their budget.
Can a fixed price quote change after acceptance?
Only through the contract's variation process, when the client asks for something outside the stated scope or a condition the quote excluded turns up. That is why fixed price quotes need a clear scope and a list of exclusions. Work that was in scope but took longer than expected is normally the supplier's cost.
Do time and materials quotes need an estimate?
They do not strictly need one, but clients struggle to approve open ended work, and consumer protection rules in some places expect clear pricing information. An estimate with a range, the assumptions behind it and a promise to warn the client before exceeding it is the usual way to give confidence without fixing the price.
How should materials be charged on a time and materials job?
State it in the quote: at cost with receipts, at cost plus a stated markup, or at a list price. Clients accept a markup more readily when it is disclosed up front and covers real costs such as ordering, collecting and warranty handling. A hidden markup discovered on an invoice damages trust quickly.
Which is better for software projects?
Many software teams fix the price of a short discovery phase, then work on time and materials or capped sprints for the build, because requirements change as users see the product. A full fixed price for software suits small, well specified features. Large fixed price builds often end in disputes about what the original scope meant.
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Create a proposal with OneCraftRelated questions
- What is cost plus pricing?What is cost plus pricing: price equals cost plus a markup, a worked example, how cost plus contracts work in building, and when fixed pricing fits better.
- What is a day rate?What is a day rate: the price for one working day, how to build it from target income, costs and billable days, and when to quote by the day.
- What is a schedule of rates?What is a schedule of rates: agreed unit prices applied to work as it is ordered, used in maintenance contracts. A worked schedule and a month of charges.
- Value based pricing vs hourly: which should you quote?Value based pricing vs hourly billing: how each sets the price, who carries the risk, when each fits a service business, and how to move clients across.
Step by step in the builder: Create a quote with AI, then Add a pricing table with optional extras.
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