A pricing model affects a lot when you are in outsourcing business where cost is a primary feature for making strong client relationships. Most of the deals in this industry carried out with the goals of reducing cost, transparency and increasing the focus on the company’s core functions. That’s why choosing the right pricing model is essential for your business success.
What do you mean by pricing model?
A pricing model is a contractual agreement between a service provider and a service taker. There are no perfect or imperfect models for pricing. It’s all your business needs that dictate which one is fit for you. So, here in this article, let’s check some of the defined pricing models in the outsourcing industry:-
Fixed Cost Model
Fixed pricing is the most common method in which you paid a fixed rate for pre-decided services to be delivered within a given time. This model requires little to no supervision. So, this is perfect for small to mid-sized outsourcing projects. Here check it’s benefits:-
- Low Risk
- Clear Requirements
- Less Supervision
- Defined Deliverables
- Predictable Project Scheduling
Downsides:-
- Long-Time Preparation
- Minor Control
- Lack of Communication
Time & Material Model
If you are going to outsource a software development project, this model is best suited to you. This pricing model is fully negotiable and there are no pre-decided end goals. You can take advantage of using hourly, weekly or monthly basis rates for your services. Here check it’s benefits:-
- Flexible
- Task Prioritize
- Client Control
- Faclitate Agile Development
Downsides:-
- Need Time for Participation
- Low Budget Control
- No Specific Deadlines
Mixed Pricing Model
This model is a combination of fixed and time-material pricing. This model is used when your requirements are not specified. On the other hand, your prescribed project will be done on a given timeline. Here check it’s benefits:-
- Saves extra price
- Better control over timings
- A dynamic set of requirements
- Strict Time Frame
Downsides:-
- No complete control over resources
- Cannot change your requirements
Dedicated Team Model
If you are looking for the perfect pricing model for long term projects, this one is the best. This type of model allows you to collaborate and focus on one project striving to deliver impressive results. Here check it’s benefits:-
- Straightforward Communication
- Catch-all Control
- Reliable Team
- Task Flexibility
Downsides:-
- Expensive
- Time Expenditure
- Extra Cost for Management
How to select the best pricing model for your business?
Setting your price levels is a key to profitability and failing of your business. It is very important for the owner to understand market needs and what their clients are actually demanding. Same way, the business holder must aware of how your business model could support different pricing levels.
To choose the right pricing model you must be going through various options and create a shortlist. This process will need hard work to finalize your pricing strategy. You can test different price options to select the best one. And go with the option of value-based pricing.
Remember some points:-
- The total cost of the agreement while choosing a pricing model for your outsourcing business.
- The flexibility of terms of services in the agreement.
- Is your decided pricing model results in supplier lock-in.
Conclusion
Choosing the right pricing model for your outsourcing business can be a complex decision. However, a carefully outlined and strategized plan is must for your organization. To select best, you need a deep understanding of the complexity of each pricing model. In this article, you can check-out some most used and recommended pricing strategies out of a number of different models.
With all of the above taken into account, you can go for the model that is more transparent as per your requirements. For achieving successful outsourcing, you must know the costs behind the services in order to make a more accurate decision. Your choice of pricing model will limit the risks of unexplained extra costs.
