Price Model in IT Out Sourcing

In the previous part, we discuss the benefits of IT outsourcing. Now let’s see;
The most prevalent outsourcing price schemes are listed below:

Staffing model

The staffing model is a pricing scheme in which a client hires resources from a service provider for a set time. Staffing in BPOs includes workspaces, Internet phones, computers, and other tools that employees require to run the business.

The service provider and staff are frequently located in a variant city or nation than the client.

One of its benefits is that the client retains project control. They might send an in-house staffer to train and monitor their employees, and they might move them up and down based on demand.

Fixed price (FP) model

In a fixed price (FP) approach, the service provider establishes a standard rate for its services. Based on the client’s option, this can be billed monthly or yearly, and it already comprises prices for tools and workspace.

The FP model can be tweaked based on various criteria, including pay, incentives, and success goals.

Cost reimbursable model

The cost-plus or cost-reimbursable model permits the service provider to establish limitations on consumable costs and then contribute a percentage for profit. This differs from the fixed-price model, in which they commit to a set cost regardless of the amount of money spent. The service provider may or may not blend cost-plus and incentive pricing within that manner.

Time and materials (T&M) model

The time and materials (T&M) model is common in long-term IT projects, often referred to as the cost and materials (C&M) model. This necessitates service providers bidding on a specific project and preparing a proposal depending on the client’s specifications.

This can also be seen on a build-operate-transfer (BOT) approach, in which the provider creates and runs a project from start to finish. The T&M model also needs the provider to conduct business in-house or under the supervision of the client.

Consumption-based pricing model

On the other hand, Cloud service providers typically charge for their services based on usage. Clients are charged depending on their utilization over a month or year. On the other hand, customers benefit from the costing flexibility as they only spend for what they utilize.

Profit-sharing pricing model

However, the profit-sharing model could be contingent on the client and service provider agreeing. But unlike an incentive-based system, profit-sharing enables the customer to give the service provider a portion of their profit.

This is typically given as a reward for excellent work performance that results in a positive outcome for the customer. Profit-sharing takes the client plus service provider’s collaboration to the next level.

This enables them to engage more collaboratively and address problems inside the organization and their team’s operations, resulting in a more efficient workflow.

Incentive-based pricing model

Clients may choose to contribute a commission or bonus to their service provider in addition to their regular fees to improve their performance. Seasonal accounts and supplementary services like a 24/7 line and after-hours are frequently subject to incentive-based costing.

Shared risk-reward pricing model

A shared risk-reward approach, such as the incentive-based approach, is added on top of the standard flat rate. The customer and service provider, on the other hand, share the dangers and developments of their business.

This could be used with T&M, FP, and profit-sharing systems. Both the provider as well as their clients have benefited from this.


Outsourcing is a collaborative effort, and neither party must start the conversation to take benefit of the other. You must strike a balance between risk and return for both parties whilst ensuring that your outsourcing partner offers solutions rather than activities, assuring that you receive the most bang for your buck. It could be challenging to choose the correct price model.


Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on email

More Posts

Send Us A Message

AJS is a company that is established with the mission to grow with the growth of others.

Privacy | Site Terms | © 2021, AJS Cloud. All rights reserved.