Glossary
Fixed fee project
A fixed fee project is one where the client pays an agreed total amount for a defined scope of work, regardless of how many hours the agency actually spends on delivery. It is one of the two main billing structures used by agencies, alongside time-and-materials. Fixed fees offer clients cost certainty and agencies potential margin upside — but they also transfer delivery risk to the agency.
When fixed fees work well
Fixed fees work best when the scope is clearly defined and the agency has delivered similar work before, making the effort estimate reliable. They are common for project types with well-understood deliverables: website builds, brand identities, campaign production, and defined consulting engagements.
For clients, fixed fees remove budget uncertainty and simplify procurement approval. For agencies, they can generate higher margins than time-and-materials if delivery is efficient.
The risks for agencies
On fixed-fee projects, all cost overrun risk sits with the agency. If the project takes 40% more hours than estimated, the agency absorbs that cost in reduced margin. This is why strong scoping, a clear statement of work, and a robust change order process are more important on fixed-fee engagements than on time-and-materials.
Fixed-fee pricing also requires agencies to track hours meticulously. Without that data, it is impossible to know whether a fixed-fee project is profitable until it is over, and by then it is too late to intervene.
Example
An agency quotes £24,000 fixed fee for a brand identity project based on an estimate of 160 hours at an average cost rate of £90/hour and a 40% target margin. If the project is delivered in 130 hours, margin improves. If it takes 200 hours due to additional revision rounds and unclear briefing, the margin erodes significantly and may become negative.