When it comes to building software, many founders struggle with the decision of hiring talent full-time to work on their project or outsourcing by the hour. A bad decision at an early stage can quickly turn into a hole in your pocket and no product.
Over the years, I’ve talked to dozens of founders regarding whether they should hire talent by the hour or full-time for a flat fee. The truth is, there is no right or wrong answer. It just depends on your specific scenario.
I’ll go in deeper to which is best for you, but first, let’s identify what each of these types of engagements is:
Hourly: Typically, an hourly engagement is where you ask a freelancer or an agency to do a specific amount of work. They estimate the hours, and once they deliver the work, they invoice you for it. The number of hours may be agreed upon in advance or not.
Flat fee: The most prominent example of a flat fee is when you have an employee. No matter their work, they always put in a pre-defined amount of hours each month, and you pay at the end of the month. This works for companies as well, like when you hire people through Ideaware.
So, which type of engagement is best for you?
In my experience building products and teams for the past 12 years, it boils down to the current stage of your product and your budget.
For products in the early stages, where you are building a prototype or an MVP either to validate or find funding, your best bet is going with an hourly engagement. You will have to work with a limited amount of hours (and budget, of course) to get the work product done as quickly as possible and within budget.
Beware, however, of scope creep. Keep your MVP to a base minimum of features.
Pros of hourly engagements:
- Quick to start.
- Easy to find talent.
- No long-term commitment.
Cons of hourly engagements:
- Lack of control over the people working on your product.
- Lack of commitment since some of them may be working on multiple projects.
- IP ownership might e an issue.
- It can get pricey by going out of budget.
So when should you commit to a team with a flat fee?
Flat fees are usually associated with long-term commitments, such as bringing in someone as part of your team. That can be in the shape of a retainer or a longer-term SOW. Typically you pay only once a month the same fee for the talent you’ve hired.
Founders or companies with a long roadmap that includes building, launching, and growing their products should go with the flat, monthly model. This ensures you have talent that is 100% dedicated to you, which you can bring in as part of your team.
Products get built faster, and there is more commitment from the team.
Pros of flat fee:
- More team commitment.
- Handpicked specialized team.
- 100% dedicated to your product.
- Culture & retention.
Cons of flat fee:
- It takes a bit longer to get going.
- Longer-term engagement means long-term vision.
- More funding is needed.
It is a great idea to have a well-defined product idea and a roadmap off the bat in both cases. This will save you headaches along the way of rewriting entire parts of your product or diving into an endless pool of features and never launching.
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