When you start a digital project, you typically have a budget in mind. Whether that's dictated by your investors, your bank account, or what your friend told you about how much it cost him/her, you can count on knowing something before beginning your discovery.
This wasn't always the case. Between 1992 and 2003, you had an entire generation of entrepreneurs, designers, and developers that had never charged or paid for these engagements. You could spend $100k at ad agency at the same time you could spend $2k for the exact same work from your Nephew/Niece.
Back then, the fixed bid was a necessary tool for getting a handle on market value. Now, the internet industry as a whole has leveled off and it's value can be calculated in the same manner as any other service industry. This is just to say that a company hiring a executor(s) can, with a little research, get the general market value for any person or agency executing their idea.
Why fixed bids are dying out
- Rigidity. Ideas, thoughts, and entire business models are in constant flex. App trends and niches are getting filled faster than ever. If your idea takes more than 3 months to create and develop or you just don't care, chances are your product is going to need to pivot prior to launch. Fixed bids afford you no flexibility in an industry that is innately organic and in constant change.
- Owners want a good deal and developers want to make a profit. The best way to have an unsuccessful partnership is to be on completely different pages from the beginning. Unless your team is skinning CMS's or outsourcing WordPress blogs, they are not going to be efficient enough to make a real margin on your project. Also, there aren't too many (good) starving digital designers or developers to justify having them work for less than their asking rate. Whatever the case, you're setting yourself up for a subpar project, experience, or both.
- Change orders. If those executing on your project have any account management at all, you'll be signing off on something new every time you have a new idea or change one. That means every time you pivot your project, a new amendment to your agreement must be estimated, communicated, and signed-off on before work can begin again. This is inefficient for those executing your work and a real obstacle for getting your project to market in a timely manor.
- Maintenance. Those relying on a fixed bid typically aren't budgeting for future maintenance. Maintenance could be anything from server issues to putting together small marketing pages. It's a difficult transition to start paying executors for their time ad-hoc because paying by the hour feels like you're getting less business value, even though it's the same ratio as your fixed bid engagement. Most relationships are either ended or are setup on more costly retainers.
- Going out of business. Fixed bids are responsible for putting shops and companies out of business. Whether that's a vision that never gets fully built, or an executor that underbid the project by such a large margin that they go bankrupt trying to finish it. This happens every month in Chicago and it's why all the top agencies are now either practicing feature driven development or are simply time and materials.
Why fixed bids will never go completely extinct
- Work for non-profits. Non-profits can get great value out of a fixed bid projects, especially if it has major buy-in from the leadership and team executing the vision. Just be prepared for your project to take way longer than a typical project. I've never seen or been part of a site for a non-profit produced quickly at any agency of any size. Fast, Cheap, and Good. You pick two.
- Someone is learning. Hungry developers and designers have relied on fixed bids to help them level-up since the beginning of professional website development. In cases of self-discovery and education, several hours can be spent on a trivial task that may have only taken an experienced executor one or two. Having time to fail is a great way to keep the executors and the ones hiring them on the same page.
- Business schools still teach it. It is extremely easy for an individual with business or legal know-how to work the system in their favor. I've seen the permutations cited to a lack of satisfaction to descrepencies in the amount of value delivered. Unless those executing have a great lawyer, the language in a fixed bid contract is almost always going to be loose enough for incredible interpretation by both parties. So, why not? The goal is to make money, not friends.
- The project is so cool!!! This is very rare, but sometimes a project will bring enough attention that both parties can agree it's mutually beneficial. Fixed bids work well in these instances because you get great work, the team gets great attention and both parties can feel they're making a difference. Disclaimer: this is reserved for household names, only. If you're a startup that isn't funded by a major mover in tech, it probably isn't going to garner enough attention to balance the lack of funds with the attention the team would receive. Sometimes non-profits fall into this category as well.
The market has grown up. When you enter into an agreement to create your vision or execute someone else's, it all comes back to communication. In fixed bid agreements, the minute that one party's assumptions about what they are getting or delivering change, you introduce massive inequities that produce subpar results. It can be done, but there's a reason it's an endangered species.