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it outsourcing pricing

IT Outsourcing Pricing and Models You Must Know

As per our discussion regarding IT outsourcing in previous articles, outsourcing is a strategy that helps any company to work with IT experts but at the same time, they have more room to focus on business growth. The type of IT service may determine the right model, however as outsourcing services have expanded into more varied partnerships, the techniques and models have changed to incorporate managed services and more outcome-based agreements. IT outsourcing pricing and models play major role in the entire projects and output. Read on! 

Fixed Pricing
As the term states, fixed pricing means that all the pricing is determined from the start of the agreement. If your company has stable and clear requirements, objectives, and scopes, the fixed pricing model most likely suits you perfectly. The situation allows you to predict the cost, making it easier to determine the deal price from the start by both parties.

IT outsourcing pricing

Variable Pricing
This model allows you to pay a fixed pricing with variance as add-ons to certain services which may be excluded from the list of service items. In other words, this model is a fixed pricing model with extra, flexible requests from the clients. This model allows for some variances in IT outsourcing pricing based on providing higher levels of services from the provider. 

Time and Materials
This model allows you to pay the provider based on the time and materials used to complete the work. If your company is in situations that are difficult to estimate or need to evolve rapidly, this model of IT outsourcing pricing might be a perfect choice. ‘Time and Materials’ model have been familiar to many clients and is usually used in long-term application development and maintenance contracts. 

Cost Plus
This model of IT outsourcing pricing requires a contract that is written from the start so that you pay the provider for their actual costs and a predetermined percentage for profit.

it outsourcing pricing

Gain-Sharing
This IT outsourcing pricing is based on the value delivered by the provider beyond their typical responsibilities but gaining from their expertise and contribution. Both parties, the client and the provider, have money at risk and stand to gain a percentage of profits if the supplier’s performance is optimum and meets the client’s objective. 

Unit/On-Demand Pricing
This model allows the provider to determine a set rate for a particular level of service. Then, the client pays based on its usage of the service. This pricing model is effective if your company needs to increase its productivity. This model also helps you to make component cost analysis and adjustments easy. 

Performance-Based Pricing
This method is usually used in conjunction with a traditional pricing method, such as time-and-materials or fixed price. Performance-based pricing is a method when you provide financial incentives that encourage the provider to perform optimally.

it outsourcing pricing

Shared Risk or Reward
This method requires a more extensive level of governance to do well. Through this method, both parties jointly fund the development of the products, solutions, and services with the provider sharing in rewards for a certain period. 

The different pricing models are significant according to the company’s different needs which also determine the relationship between the outsourced operations. This would enable companies and outsourcing service providers to go with what is best for each other. Note that determining pricing models is one of the most important steps before using IT outsourcing. 

Looking for IT Outsourcing providers that can help you bridge the gap between technology and business for digital transformation optimization? Let us discuss how pricing models benefit us all! Contact us!

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