> Billing model with an agreed price for a defined scope: the vendor takes on overrun risk in exchange for a potentially higher margin.

Source: https://hice.ai/en/glossary/fixed-price
# Fixed Price

Also known as: Fixed fee, Lump sum, Turnkey contract

## What is Fixed Price?

Billing model with an agreed price for a defined scope: the vendor takes on overrun risk in exchange for a potentially higher margin.

## How does Fixed Price work?

Under Fixed Price the client pays a pre-agreed amount for a scope detailed in the SOW, regardless of hours actually delivered. Billing typically follows milestones (e.g. 30% at kickoff, 40% mid-project, 30% at acceptance).

The vendor must estimate effort precisely: each extra day erodes margin. That is why scope creep must be governed via formal change requests. Fixed Price is preferred for well-defined projects such as standard implementations, migrations or builds with clear requirements, where the delivery team already has repeatable experience.

The estimate is where the margin is won or lost, and most firms never close the loop on it. Recording the original estimate at the moment it is made, then comparing it with the actual at close, reveals patterns that are rarely random: certain work types are consistently underestimated, and certain estimators are optimistic by a stable factor that can simply be corrected for.

Governing change is the other half. A change request that arrives as a conversation rather than a document tends to be delivered and never billed. Firms that hold Fixed Price margin usually do one unglamorous thing well: every scope change is written down, priced and accepted before the work starts, even when the client relationship makes that feel unnecessary.

## A practical example of Fixed Price

A CRM implementation is sold at 120,000€ fixed price over 6 months with a 35% target margin. If delivery overruns by 20 person-days, margin drops below 25%.

## In-depth articles

## Related terms