5 Facts Most Founders Don't Know About Hiring a Dev Agency

The Hidden Incentives of Dev Agencies

Beneath the glossy sales decks and “agile” buzzwords, the economic engine of most outsourcing shops—especially offshore ones—is billable hours. The basic formula is straightforward: more hours × lower‐cost labor = bigger margin. That equation quietly shapes everything from project estimates to architectural choices. A senior PM who can model a feature in three days might be replaced by two mid-level developers who need three weeks—on paper a “win” for capacity planning, but in practice a 400 % uptick in hours sold.

When the incentives are mis-aligned, the results can be spectacularly expensive. In 2019, Hertz sued Accenture after paying $32 million for a website redesign that never went live, citing repeated timeline extensions and ballooning change orders driven by hourly billing targets. Even blue-chip firms get caught over-logging time: Infosys fired multiple employees at its Czech BPO center for overstating man-hours billed to Apple—proof that overbilling isn’t confined to small vendors.

Zoom out and you can see the statistical fallout. The Standish Group’s long-running CHAOS Report shows 52.7 % of software projects exceed their original cost estimate by an average of 189 %—a pattern that correlates strongly with time-and-materials contracts where the vendor, not the client, controls the clock. Multiply that dynamic across thousands of agencies in Eastern Europe, South Asia, and Latin America, and you have an entire global market optimized to keep “the meter” running rather than shipping value quickly.

Hourly vs. Fixed Pricing Models

Ask an agency which pricing structure they prefer and the honest answer is almost always “hourly.” Time-and-materials (T&M) contracts let them monetize uncertainty: every scope change, iteration, or bug becomes incremental revenue. Fixed-price engagements, by contrast, force the shop to absorb overruns—so most vendors either inflate fixed bids as a hedge or steer founders back toward hourly “flexibility.”

Industry analyses back this up. A 2024 Inspeerity study notes that T&M is advantageous only when scope is fluid, yet agencies pitch it even for well-defined work because it “keeps budgets flexible” (read: expandable). Fixed-price deals, meanwhile, shift risk to the vendor and demand meticulous requirements up front—effort agencies often dodge by claiming “agile means we can’t lock scope.”

Consider a real-world contrast: many SaaS companies negotiate feature-based, fixed-fee statements of work with on-shore boutiques to accelerate a specific release. They routinely hit deadlines because the vendor’s margin lives in delivering faster than the estimate. The same feature set outsourced to an hourly team overseas can drift for quarters, burning through cash with nothing market-ready to show. In short, pricing model ≠ mere paperwork; it determines who carries risk, who controls velocity, and where innovation stalls.

Ability to Deliver Consistently (and Why It Fades)

Early in a new engagement agencies over-communicate: daily stand-ups, Slack channels, glowing sprint reviews. But once a retainer or rolling SOW locks in predictable cash flow, complacency can seep in. Work that felt like a partner­ship degrades into “burning the hours we owe you.”

Advisory firm Leancept warns that monthly recurring revenue can “lead to reduced quality, which puts the entire client relationship at risk” because teams fall into commodity assembly-line delivery instead of pushing creative solutions. The same article highlights another danger: retainers can mask client dissatisfaction until one day the founder pulls the plug—leaving the agency scrambling to replace a revenue stream it had treated as passive.

Recurring revenue obsession isn’t limited to small shops. A March 2025 Bonsai survey found that 57 % of agencies keep less than three months of operating cash because they rely on retainers yet still experience feast-or-famine swings—pressure that encourages maximizing billable hours over client outcomes. The result for founders is a familiar arc: honeymoon productivity, followed by plateau, followed by missed milestones that the vendor explains away as “normal sprint velocity.”

Five Facts Most Founders Don’t Know About Hiring a Dev Agency

An Hour Isn’t Always 60 Minutes. Many offshore agencies bundle junior talent, internal meetings, and even onboarding into the same “billable” bucket. Overstated man-hour scandals—like Infosys’ Apple support case—show how easy it is to pad timesheets when the contract rewards volume, not value.

1. Time-and-Materials Shifts 100 % of the Budget Risk to You. Standish data indicates that T&M projects are almost twice as likely to blow their budgets compared to fixed-price efforts because every surprise costs extra.

2. Retainers Can Breed Complacency After Month 6. Agencies that depend on recurring revenue often standardize processes to protect margin, leading to quality drift precisely when your product roadmap needs fresh thinking.

3. Fixed-Price Is Possible—If You Force Detailed Discovery. Vendors avoid it because it cuts into upsell potential, but the Inspeerity study shows fixed-price works well when requirements are clear and can actually accelerate delivery by aligning incentives.

4. Overruns Aren’t “Edge Cases”; They’re the Default. More than half of software projects worldwide exceed budget, timeline, or both, and lawsuits like Hertz v. Accenture illustrate how quickly costs can snowball into eight-figure write-offs.