Most popular outsourcing business models

By: Segiy Sergienko, 2 Sep 2016
3   min read
Reading Time: 3 minutes

It’s not always clear how to offer a fair price for a project with a specific scope. Not coincidentally, price negotiations generate lots of discussions with your potential contractor.

Your pricing model will depend on your business expectations for the IT outsourcing solutions you are procuring. It’s always better to choose the pricing model from the outset to get the most out of the engagement and reduce ambiguity.

Parties must try to create a win-win relationship by structuring the outsourcing project agreement around a selected pricing model.

Depending on the type of work, project management, and the required flexibility, as well as the project budget, the client should consider one of three major outsourcing models.

Fixed Price

  • Detailed project description
  • Permanent set of requirements that won’t change over the project
  • Stable timelines
  • Transparency of total cost

Once you have a detailed project description with all requirements and timelines for implementation, the contractor’s project manager will control the workflow and keep the client informed on progress.

After the project has started you can’t make corrections to the scope and the price if you need to cut your expenses or have new information and want to make adjustments.

The fixed model is suitable for small-scale projects that do not require much adjustment.

When a target cost and profit can be discussed at the outset, Fixed Price is the most suitable model to begin with.

Time & Material

  • Flexibility to change the scope of  a particular project
  • Flexibility to change the priority of tasks

As for the Time and Material model pros, you have greater control of the situation and can adjust your contractor’s priorities and timelines. You also agree to pay your external team on a monthly, daily or hourly rate based on team member experience and skills.

Dedicated Team (outstaffing)

  • Fully predictable costs
  • A team dedicated to your project
  • You manage the team on a daily basis

A dedicated team is right if you are looking at a long-term strategic project and want to make changes on the fly, but the budget is not predefined and will depend on the price of the specialists you are hiring, and the timelines required to implement the project.

A Dedicated Outsourced Team (commonly  known as a Dedicated Team), in opposition to the previous models, allows to scale your scope without losing project quality. You select the best specialists and influence the quality of the work, while still receiving the benefits of outsourcing – cost reduction and freeing up internal resources. You have a team of professionals who work on your tasks exclusively, and you manage the priorities of their workload and save on administrative expenses like HR services and accounting.

Choosing the right pricing model for you at the outset will ease your project implementation. If you are considering IT outsourcing as a long-term strategic function for effective budgeting, cost savings, and skill procurement, then a dedicated team model should meet your expectations. For more information and effective setup, you can can tell us about your project details and we will help you find the best team to achieve your business goals.

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