The Problem with Fixed-Price AI Projects
Fixed-price projects work when the scope is well-defined and the technology is predictable. Building a standard website? Fixed price makes sense. Both parties know what they’re getting.
AI projects are different. The scope evolves as you discover what’s possible and what’s practical. The technology has surprising failure modes. The “right” solution often becomes clear only after you’ve built the first version.
Why Time-Based Billing Works Better
Aligned Incentives
With fixed-price, the consultant is incentivized to minimize scope and cut corners. With time-based billing, the incentive is to do the best work possible, because the relationship continues as long as both parties see value.
Honest Communication
Fixed-price projects create adversarial dynamics around scope changes. “Is this in scope?” becomes the most common question. With time-based billing, the conversation shifts to “What’s the most valuable thing we can work on next?”
Flexibility to Pivot
AI projects frequently reveal unexpected opportunities or obstacles. Time-based billing lets us pivot without renegotiating contracts. If we discover during week 3 that the original approach won’t work, we can change direction immediately.
Transparency
I track my time meticulously and share detailed logs with every invoice. Clients see exactly what I worked on, for how long, and what was produced. There are no hidden hours or padded estimates.
How I Structure It
- Weekly invoicing: Pay as you go, cancel anytime
- Detailed time logs: Full transparency on hours and activities
- Regular check-ins: Weekly priorities and progress reviews
- No minimum commitment: If you don’t need me this week, you don’t pay
The Trust Factor
Time-based billing requires trust. The client trusts that I’m working efficiently. I trust that they’ll maintain the engagement as long as the work delivers value.
This trust is built through the initial two-week assessment. By the end of those two weeks, both parties have enough experience working together to know if the relationship works.
When I’d Consider Fixed Price
The exception: well-defined, repeatable deliverables. If a client needs the exact same RAG system I’ve built five times before, a fixed price might make sense. But even then, I prefer time-based billing with a not-to-exceed estimate.