The Procurement Problem Holding PropTech Back
The two most common software procurement models — Time & Material (T&M) and Fixed Price — were designed for a world where software projects had clear, stable requirements and predictable timelines. PropTech products don't live in that world. Market conditions shift, regulatory requirements change, and the competitive landscape demands continuous product iteration. Both T&M and Fixed Price create friction against that reality.
What's Wrong With T&M for PropTech
T&M gives clients flexibility but no cost predictability. For a PropTech product under active development, a T&M contract creates ongoing budget uncertainty that makes planning difficult and creates adversarial dynamics around scope. Every new feature request becomes a negotiation.
What's Wrong With Fixed Price for PropTech
Fixed Price provides cost certainty but inhibits agility. Defining the scope of a PropTech platform upfront with sufficient detail for a fixed-price contract requires months of specification work — work that often produces documentation that's already outdated by the time development begins. Change management processes slow down iteration and penalize learning.
The Managed Capacity Alternative
The Managed Capacity model — sometimes called Value Stream Budgeting — provides a stable team capacity at an agreed monthly rate, with scope flexibility within that team's skill set. VSBD provides teams with an agreed monthly target headcount (e.g., 2 teams of 10), with volume discounts for longer engagements and flexibility to adjust team composition as priorities shift.
Key characteristics:
Flat monthly rate for core team composition — no per-hour negotiation
T&M for flex capacity — temporary specialists or surge capacity beyond the core team
Scope flexibility within 10% handled by the existing team without change requests
VSBD covers vacation and sick leave — client headcount doesn't dip when team members are out
Volume discounts that reduce the effective rate for larger, longer engagements
KPIs That Make Managed Capacity Accountable
The objection to Managed Capacity is reasonable: if you're not paying per deliverable, how do you know you're getting value? The answer is a transparent KPI framework that tracks delivery velocity, quality, and business outcomes simultaneously:
Development KPIs: Deployment frequency, lead time for changes
Quality KPIs: Change failure rate, mean time to restore, defect containment
Cost KPIs: Cost of delay, rework percentage
Value KPIs: Percentage of validated user stories, business value delivered per sprint
VSBD uses a KPI Pyramid that aligns development metrics to business outcomes — making the value of the engineering investment visible to executives and delivery teams alike.
When Managed Capacity Fits Best
Managed Capacity is ideal for PropTech companies that:
Have a clear product roadmap but expect it to evolve
Need a stable, cross-functional engineering team over 12+ months
Want to avoid the overhead of managing individual T&M time sheets
Value engineering culture and knowledge retention over lowest-cost headcount
VSBD's Managed Capacity engagements have consistently achieved NPS scores above 50 — measured after each quarterly business review — reflecting the alignment between client expectations and delivery outcomes that the model creates.
Originally published on the VSBD blog.
