I did a post the other day about how if you want a fixed-price project, you need to write a specification.

But many people do get projects quoted for them on a fixed-price basis, even though they don’t create a specification. How you ask?

Well, if you’re a software agency and you want to sell your services, and customers aren’t forthcoming with their specifications, you end up getting good at dealing with the fallout.

The problem with fixed price only impacts when the estimate is too low. If your agency quotes too high and you pay it, and never find that out, if you feel like you got value – who cares.

But if your agency quotes too low, they have two options.

Option 1 is that they absorb the overrun and it eats into their profits. Believe it or not, some software agencies bumble along for years flirting with breakeven results.

Option 2 is that they ask you for more money. This works if you have more money. A lot of startups don’t have more money. This is one of the plethora of ways in which software agencies can end up damaging your startup.