When outsourcing your startup company operations, the overall cost is always a major consideration. After all, you don’t want to end up spending way too much than what you can afford. Here, understanding the different pricing models available for you will help a lot. Let’s take a look at each one of them and learn how to choose the best one for you.
Outsourcing Pricing Model no. 1: Fixed Price Pricing Model
As the name says, the fixed price pricing model has you and the outsourcing firm agree on a set price to cover the entire project. You charge that price either monthly or annually as per your agreement.
For this, determine pricing based on a clear estimate of the project cost and the profits. For that, you should have the following prepared during the initial assessment.
- Full details of the project scope
- The specific price for the service
- A negotiation of what is included in the service
- The deliverable milestones
These elements will serve as the foundation of the final price negotiations. In some cases, not every detail might be available. Here, the outsourcing firm will have to make their offer based on readily available information.
Things Your Startup Should Consider
The fixed price model is well-suited for a long-term project that has small or medium scopes. This is because such projects often have to work with a predetermined budget. Outsourcing firms also opt for it since it incentivizes them to finish the project efficiently. However, that also means they shoulder most of the risks since payment only comes after project completion.
Another draw of the fixed-priced model is that it avoids the potential appearance of hidden charges. But it can be inflexible in case of unexpected changes in the project due to external factors. For this, you will need to anticipate possible changes beforehand and incorporate them into the final pricing contract.
Outsourcing Pricing Model No. 2: Time And Materials Model
In the time and materials model, the total project price is determined by the actual time spent by the outsourcing firm working on the project. The cost of the materials they use is also incorporated, hence the name.
This model can often have a lower price than the fixed model because you are paying only for the actual resources used by the outsourcing firm. It also offers you more billing options. You can pay on a weekly, daily, or even hourly basis. Projects that change a lot during their lifespan can benefit from this type of pricing.
Things To Consider With This Pricing Model
The biggest draw of the Time and Materials model is its greater flexibility. A startup company working on agile projects will find it a good option since their project parameters change often. You also don\’t need to be tied to a specific budget and don’t have to go through a considerable amount of preparations.
Beyond the cost, this model also gives both the startup company and the outsourcing firm a greater degree of freedom working on the project. Since there are no specific deadlines, you can work on it in a more in-depth manner.
However, those benefits can also create issues without proper project management. As such, you may want to spend more time participating in the discussions around the work. This will help you better assess whether the cost is within your desired range.
Outsourcing Pricing Model no. 3: Staffing Model
Most of the different outsourcing models have the external team work independently of the startup company. In the staffing model, the outsourcing firm provides the staff that integrates into the in-house working team.
You pay based on a monthly fee that both parties agreed upon during initial negotiations. You can select the staff member assigned based on the exact skill set you need. This makes it useful for a small startup business looking to get specialized staffing expertise.
Things Your Startup Company Should Consider
With the staffing model, you get greater control over the personnel you have That makes it easier to align them to your business culture and needs. Additionally, you can more readily build a long-term relationship with the outsourcing firm.
Another great benefit of this model is that you have full transparency of the cost. Since there is direct control over the assigned personnel, you can quickly determine their salaries, commissions, and other costs. This makes it easier for you to do budget allocations.
However, you need to ensure that the integration of the outsourced personnel would be as seamless as possible. For this, consider more than just the required skills when selecting from the roster provided. Additionally, the model might be more viable if you already have plans for a long-term partnership with the firm.
Outsourcing Pricing Model no. 4: Bundling Pricing Model
In certain outsourcing situations, you might need to get several different services. Instead of having to negotiate each service separately, you can opt for a bundled pricing model. Here, you pay a fixed price that is typically lower than the individual prices for each service.
This option is great for startup companies that need to fill several departments quickly. However, the caveat is that these bundled packages often come predetermined. That means you won’t have much control over what you get.
Things Your Startup Company Consider
Because of this, you might find yourself paying for services you end up not using often. As such, review packages from different providers first. What you want is to get a bundle that fills most of the services that you need. From there, negotiate for reduced rates for the services you will not be using.
Another consideration here would be the risk associated with having a single provider. To avoid this, go for a provider that has a good track record of supporting bundled agreements. Additionally, you don\’t want to bundle a long-term service with short-term ones. You will end up paying for the latter even after their period has expired.
Choosing The Right Pricing Model For Your Startup Company
As always, your needs will be the primary criteria for determining the best pricing model for you. But you would also want to take into account other factors. One would be the projected direction of your project. You would want something that would fit that direction. But keep in mind it can still change in the future, so the provider you go with should be flexible with their pricing. Virtua Outsourcing Solutions offers such flexible pricing for your needs. Contact us for more information.