The right way to price - Second post
Let me first table the various models that we have been talking about
1. Pricing linked to percentage of spend – The provider will charge a % of the spend processed through the platform. There would be no limitations on the transactions.
From a customer’s perspective the model lacks the granularity of the effort based pricing. As for long providers have been providing FTE based pricing which is directly attributable to the number of FTE deployed on the job. Some customers find the spend based model to be opaque and hard to compare.
On the other hand from a provider’s perspective any “end to end” or managed services model like platform has to be linked to the business outcome. The business of procurement is to manage spend and hence a provider who helps manage spend should charge as per the spend processed rather than the underlying transactions.
I guess a change in outlook coupled with mechanisms to measure service providers value-add in terms of impact of spend can help move to this model
