Measuring the features of different Pricing Models
While adopting a viable model to maximize Return on Investment, it is necessitated that the two common models of pricing be examined and weighed. The Full Time Equivalent and Fixed Price engagement having ingrained its own features must be chosen depending upon the offerings of each as also the risk and return that accrue, both to providers and clients.
A Full Time Equivalent model, engaging a dedicated team, affords a flexible capacity, in as much as the team size being stretched or shrunken for the same price. The model displays efficiency enhancement as one of its primary advantages, with process improvement and experience having a key role to play. In this endeavor, the provider is able to recover cost and time, escalating the revenue per hour. At the client end, the primary advantage derived is that cost savings replace high internal costs and the potential for incremental revenue becomes steady.
As regards the Fixed Price model, Clients know exactly as to what they get for a price and eliminates no cost as the learning curve progresses. The upfront risk shifts from the client to the provider and benefit from expertise, efficiencies of established processes accrue to provider. The provider is faced with lower risk and the team is paid fully irrespective of the measure of the output, however no cost savings or increased revenue results from increasing experience and process improvements because of dedicated people and fixed revenue per person.
Both of these models, having their own advantages must be carefully examined and adhered to. The model put to use, undoubtedly cannot be employed without examining the nature of the project, the client-vendor relationship as well as the duration of the same.
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