IT – Billing Methodology (Principles of Pricing)

Standard Pricing Models (Three different pricing options)

Pricing model differs for each undertaken project on the basis of your requirement. However, the general pricing format is common and as follows.

  • Full Time Equivalent  (FTE)
  • Fixed Price (FP)
  • Time and Material  (T&M)

Full Time Equivalent 

The Full Time Equivalent or FTE option can be availed for projects which require experts on a minimum of 3 months contract period. The costing for the same, irrespective of technologies or years of experience, would be a per hour costing for the 3 months period (160 work hours per person).

Advantages of FTE arrangement are:

  1.  Highly flexible – Can follow any development life cycle
  2. Individual service components can be offered e.g. Analysis, Programming etc…
  3. Dedicated team – Knowledge management
  4. Lowest possible cost
  5. Client has a competent Project / IT manager on his side
  6. Client involvement is high

This is a least cost option hence you’ll have budget predictability and IP (Intellectual Property) ownership. The dedicated team/ individual working for you are highly flexible i.e. they can start with any level of expertise on the application. This places a high amount of control in your hands.

 Fixed Price

The typical Features of this model are:

  1. Fixed Price
  2. Fixed Scope
  3. Familiar requirement (in cases where we have done similar projects on previous occasions) or clear requirement (typically detailed analysis & application design already completed)
  4. Will involve Project Management, User Interface Design,  Devolvement, and Quality Testing, Will NOT involve Project Analysis
  5. Normally this approach has the IP (Intellectual Property) rights of the product, but can share full rights to use the software. However, if the application is fully, then as per agreement  the IP rights can be provided to the client

Typically asked by clients with less project requirement clarity and offered by us only when we have high clarity on the requirement. Advantages of this arrangement are low perceived risk and budget predictability

Time and Material

The typical Features of this model are:

  1. Single Standard rate – X$/hr – irrespective of resource used
  2. Follows typical SDLC timelines (10 -15% — Analysis, 10 – 15% — Project Management, 10 – 15% — User Interface, 40% — Coding, 10% – 15% — Testing)
  3. Ideal for small jobs/ tasks based approach
  4. Client involvement is more
  5. Client keeps IP (Intellectual Property) rights
  6. Less expensive then fixed

Advantages of this arrangement are that you have more control over implementation and it is highly flexible. This arrangement is advisable when requirements are being evolved. In addition, the business analysis team will be engaged but it will turn out to be less expensive than actually fixed.

1 thought on “IT – Billing Methodology (Principles of Pricing)

Leave a Reply