The Belitsoft software development outsourcing firm has reviewed the main pricing models available. The following summary explains what kinds of projects they work best for. For both new and old businesses, the choice has a direct effect on the project’s risk, flexibility, and possible return on investment.

The world of outsourced software development is changing quickly. Companies are dealing with smaller IT budgets, the rise of generative AI, and new ways of finding talent. Technology executives and purchasing managers are altering how they collaborate with outsourcing partners as a result of these changes. They are moving away from contracts focused only on cutting costs. Instead, they are creating agreements that tie a vendor’s rewards to actual business results. This approach is called an outcome-based or value-driven relationship.

For instance, 80% of companies plan to keep or increase their outsourcing spending, with a stronger focus on these outcome-based agreements, according to a Deloitte survey. Separately, Business Insider notes that because generative AI projects are expensive and changing quickly, companies are being compelled to try out new payment methods. These move away from just paying for time and materials and include subscription or pay-for-usage plans.

Selecting the Appropriate Model for Each Project Type

In actuality, the pricing model should be in line with the project’s features and corporate objectives. Below are some guidelines:

• Small projects and minimum viable products (MVPs) usually have limited funding and a fairly clear scope (just the essential features). A fixed-price or small fixed-capacity (story-point) engagement is often the best choice. It reduces risk and provides clear objectives. Fixed bids can be effective for MVPs, according to Entrepreneur.com, but bear in mind that subsequent changes will be very expensive. Instead, some startups may hire a small dedicated team for a short time if they think they will need to make changes after the initial build.

• Long-Term Platforms & Product Development: When building a large application (e.g. a web platform, mobile app with many features), requirements will inevitably evolve. Here Time & Materials or dedicated team models shine. They allow the project to scale and pivot as needed. If you want to be in charge and keep working, you should have a dedicated team. It is possible for T&M to keep costs in line with output when adaptability is more important than control. Story-point (fixed-capacity) contracts are another choice: you buy capacity each month and reprioritize work. This is becoming more popular in agile outsourcing. In all long-term cases, include performance reviews and possibly incentives to maintain quality – e.g. bonus for finishing milestones early or under budget.

• Maintenance and Support: Once a product is out in the world, it needs to be fixed, updated, and given help all the time. A monthly retainer or T&M is often used. You can pay a set monthly fee to some businesses to get SLAs like guaranteed response times and support 24 hours a day, 7 days a week. If the work is steady and predictable, it makes sense to have a retainer, like a small team of people who are always ready to help. If requests vary greatly, a pay-for-actual-hours (T&M) strategy with an optional monthly cap may be used. You can also use the dedicated-team model, in which you keep a small outsourced team that owns the product for a long time. The benefit is that team members will stay with your product and will remember a lot of what they’ve learned.

• Experimental/Innovation Projects: If the project is R&D-heavy with no guaranteed outcome (e.g. AI PoC, research), consider risk-sharing models. For example, pay a base T&M rate but offer a success bonus if certain innovation milestones are hit. Alternatively, engage under a fixed short-term contract with the option to convert to a long-term model if successful. Examples include the emergence of subscription/usage pricing for cutting-edge AI services; if the effort is linked to a usage metric, this may also apply to development (though such cases are still in their infancy).

• Geographical Considerations: In regions like the U.S. and Europe, wages are higher, so clients often seek more value (outcome focus) rather than just cost-cutting. Nearshoring to Europe or U.S. hubs has risen due to both quality and regulatory concerns. According to Wired, offshore teams in Eastern Europe and Latin America are being hired more frequently for international positions. For example, European procurement professionals may favor multi-year outcome-based contracts in order to comply with stringent budgetary and regulatory requirements. Due to a lack of talent, U.S. companies are combining domestic and offshore resources; they may prefer flexible models (such as T&M or dedicated teams) that enable them to quickly access global expertise.

Industry Trends & Surveys

The state of pricing models is clarified by a number of recent surveys and reports:

• Growing Outcome-Based Deals: Five years ago, only 23% of new outsourcing contracts (in call centers) included outcome-based components; according to recent KPMG’s Global Outsourcing Survey, this number has increased to 68%. Despite being focused on contact centers, this trend suggests a broader shift toward shared-risk pricing in service contracts. Gartner and others note that value-based engagements are growing in IT outsourcing, because clients want to “pay for results”.

• Budget Pressures: Because of the unpredictability of the economy, many companies are closely monitoring development costs. 83% of companies use AI in outsourcing, and many are finding a balance between insourcing and outsourcing, according to Deloitte. Still, 80% plan to maintain or increase third-party outsourcing spend, even focusing more on core and front-office functions (sales, R&D). In short, outsourcing remains strong, but the nature of contracts is shifting toward partnership models.

• Project Risk: Various studies prove that about half of large IT projects go over budget. This highlights the dangers associated with extensive development. Using appropriate pricing models (and strong governance) can mitigate some of that risk. PMI similarly reports that 37% of project failures are due to poor requirements – reinforcing that a lack of clarity hurts any model, especially fixed-price.

• Software Spend Growth: Software budgets are increasing to support digital initiatives, according to tech industry analyses (West Monroe/TechCrunch, Gartner). 86% of tech executives raised their IT budgets a year ago, and 91% anticipate doing so in 2025, according to a TechCrunch survey. But those same leaders are concerned about ROI (for example, according to MIT, 95% of AI pilots fail to deliver ROI). This creates pressure to link spending to outcomes or efficiencies.

• Offshore vs. Onshore: Wired reports U.S. startups and tech firms are aggressively offshoring or nearshoring to access talent and control costs. This entails competitive pricing and a wider variety of vendor options. However, VentureBeat noted as early as 2017 that nearshore U.S. regions were gaining ground as offshore labor costs rose. Procurement teams ultimately have more negotiating power to secure favorable terms. Due to mistrust, very offshore agreements occasionally favor fixed prices, while nearshoring frequently favors time-based models (sharing timezone, culture).

Overall, current trends indicate a shift toward more flexible, value-based models. As Business Insider notes, “AI’s high costs are pushing companies to adopt different pricing models” (e.g. token-based subscriptions).Vendors are eager to take responsibility for the outcome and share risk. Deloitte similarly sees “value-based relationships” on the rise. Astute CIOs and founders will probably prefer models that strike a balance between cost control and agility for 2026 and beyond, such as combining a T&M core with outcome incentives or employing fixed-price for discrete phases. The key is transparency and communication, so that whatever model is chosen, both sides have clear expectations and aligned goals.

About the Author:

Dmitry Baraishuk is a partner and Chief Innovation Officer at a software development company Belitsoft (a Noventiq company). He has been leading a department specializing in custom software development for 20 years. The department has hundreds of successful projects in AI software development, healthcare and finance IT consulting, application modernization, cloud migration, data analytics implementation, and more for startups and enterprises in the US, UK, and Canada.

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