Verdict. For consulting work, hold one defensible rate under both models and move the scope instead: quote fixed price where you can specify the result and its acceptance, time and materials where the work discovers its own scope, and never discount the rate to make either one fit.
Fixed price puts the risk of effort on the consultant and gives the buyer a known number. Time and materials puts the risk of effort on the buyer and gives them flexibility. For consulting work the better question is not which model is better but which one the statement of work can honestly support: fixed price for a result you can specify and the client can accept, time and materials for work that discovers its own scope as it goes. Under both, the rate is the same, itemised (itemized) on the same rate card. It was six words of Steve’s that I have repeated ever since: “Rate is fixed, effort is flexed.””
The comparison in one table
| Fixed price | Time and materials | |
|---|---|---|
| Who carries the risk of effort | The consultant. Overruns are absorbed. | The buyer. Overruns are invoiced. |
| Cash timing | On milestones or acceptance; a late client input delays your cash as well as the work. | Monthly in arrears for days used; steadier and smaller. |
| Scope change | A separate decision about cost and time, through a written change process. | Absorbed as more days, which needs a warning point and a ceiling. |
| Margin in the last weeks | Falls. The last tenth of a fixed job is often delivered for nothing. | Holds, but the buyer’s patience falls, and the engagement can be stopped. |
| What the buyer hears | “I know what this will cost me.” | “This could cost anything,” or “I can stop whenever I like.” |
Who carries the risk, and what they pay for it
In our first autumn we sent one of our first proposals with two ways to buy the same piece of work: a flexible option charged for the effort used, quoted as a range, and a fixed option against an agreed brief, with changes handled separately. The job was an interactive infographic for a digital marketing agency. The agency chose the fixed option, which sat above the top of the flexible range.
The higher price bought a more definite commitment, provided the work stayed within the agreed scope. We had been working out what the build might cost us; the buyer’s concern was committing to a number for its own customer. Two options let both concerns appear in one conversation. Neither removed the uncertainty. They placed more of it with one party or the other, and the buyer paid a premium to place it with us.
Use that approach carefully. Both offers must be honest options you can deliver. An artificially low flexible estimate makes the comparison misleading; an undefined fixed scope stores up an argument for later. We had been asking which browsers the graphic must support and what assets would be supplied, because leaving those open under a fixed total is how a fixed price becomes a loss.
Cash timing and the last weeks
Under a fixed price your cash is tied to acceptance, and acceptance is tied to things the client must supply. If the designs have not arrived, a developer cannot finish by working harder, and the invoice waits with the work. A fixed job’s margin is highest in the first week and lowest in the last, because the final tenth, the fixes and the sign-off, is where the estimate proves optimistic and where it is delivered free. Time and materials invoices the days used each month and holds its margin to the end, but the risk moves to the relationship: a buyer watching the days accumulate may stop before the result is reached, and you will have been paid for effort that produced nothing they can point to.
The house position: hold the rate, flex the effort
In January 2014 a prospect told us they liked the proposal and could not afford it, and asked what they could do on their side to bring the price down. We were two people with a handful of small jobs behind us, and the obvious answer sat in the difference between our number and theirs. It took me until the next morning not to give it. What went back was a change to the work rather than the price: we would implement one project as a template their team could repeat, the monthly service would be a minimum commitment of advisory hours, and there would be a short break clause. The rate did not move. Steve’s reply to my draft was six words: “Rate is fixed, effort is flexed.”
The order we stumbled into that week is the order I have used since, and the rate is not on it. Scope first: what you do, and what you teach them to repeat. Then effort: a minimum commitment that stops an advisory service becoming a favour. Then term: longer is cheaper, and a buyer who will not commit to length is telling you something. Then the escape hatch: a break clause costs certainty, buys a signature, and unlike a discount it expires. Only when all four have failed do you walk away.
Applied to the comparison, a fixed price is your rate multiplied by an honest estimate of days plus a risk premium you can name out loud. If the buyer wants a lower number, cut the days, not the rate. Time and materials with a cap is not a fixed price; unless the cap comes with a scope and acceptance criteria, it is the buyer’s flexibility and your risk in one document. Keep a record of every rescope where the rate held; a year on, when a salesperson under pressure says the rate is the problem, that record is the answer.
What the statement of work must say
For a fixed price, the statement of work must describe the result and how completion will be agreed; what the client must supply and by when; the environments and constraints the result must work within; the assumptions the price rests on; how a new request becomes a separate decision about cost and timing; the invoicing milestones; and what happens to the schedule when a client input is late. Every one of those is a sentence you will wish you had written when the last week arrives.
For time and materials, the statement of work must carry the rate card by grade and the definition of a day; the estimate and its range; how progress and spend will be reported and how often; the point at which you warn the client before the estimate is exceeded; when and how the client can stop; any minimum commitment; and the notice period. Flexibility is much easier to buy when it comes with visibility.
Under either, send the agreement the same day as the price and draft the statement of work from the proposal you have already written, so the pricing and the paperwork never drift apart. Most of the disputes I have watched since began as a gap between those two documents.
The consulting rate card playbook, in development, covers the rate that sits under both models and how to hold it. The consulting pricing strategy playbook, also in development, covers the phased alternative to both: a paid diagnosis first, then a fixed or flexible cure, with a profit and loss per phase.