A fixed-price strategy means you set a price and keep it constant for an extended period of time. This strategy contrasts a dynamic pricing model, where prices fluctuate over time, or sales discounts routinely occur. Fixed pricing is used for a variety of reasons and has both benefits and drawbacks relative to dynamic pricing models.
Service work is often contracted with hourly rates. This meant that clients don't know how much a project will cost until the work was complete. One common example of fixed pricing is when service providers, such as graphic designers or information technology consultants, offer a fixed project price for a certain type of work. The objective is to induce sales by letting prospective clients know up front how much they would pay for an entire project. The risk to such service providers is charging too little and overextending on the work.
Basic car services, such as oil changes, transmission flushes and tire rotations, are commonly quoted with fixed pricing. This allows customers to see prices ahead of the time they pay for service. When a customer gets an oil change priced at $29.99, he knows that will be his final price for the basic service quoted. The risk for providers is that not all services take the same time and effort, and you must have a very accurate cost basis to earn profits.
Builders and construction repair companies sometimes turn to fixed price contracts to attract customers. Rather than billing total hours for each contractor and subcontractor, a general contractor quotes a total project price up front based on estimated labor hours and materials costs. While fixed prices help win projects with budget-savvy buyers, construction companies face extreme challenges in trying to estimate total labor hours and all costs. In worst-case scenarios, construction projects cost the same or more to finish than you get in payment. On the positive side, customers know what they are paying for and don't have to worry about whether people are actually working during hours billed.
Flat-rate pricing is a primary example of a fixed-price strategy. This is where all customers pay the same rate for the same type of work. The United States Postal Service has a flat-rate priority mail service where you pay a known flat rate for each of their supplied boxes or envelopes, no matter what is being mailed. This lets the customer know up front the fee, regardless of the weight of the items enclosed.
