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IT Infrastructure Service: Selecting The Best Pricing Model

Dec 6, 2012 6:00:00 AM

by Dave Munn

IT Infrastructure Service PricingWith so many new options available in today's marketplace, choosing the right pricing model can determine the success or failure of your IT infrastructure service solutions. And, it’s not just about the cost, it’s also about how you pay, what you get and what you don’t get. That makes pricing model review a crucial element of finding the right solutions and the right suppliers. In fact, it’s best to fully understand all options and determine what makes the most sense for your company before you even begin the vendor selection process.

The key is matching pricing models to different types of infrastructure services. Naturally you’re looking for lowest possible total cost of ownership (TCO), but pricing models have to provide the right financial fit as well. You need to look at all of the possible considerations, including operating versus capital costs, asset disposition, short versus long term commitments, financial impacts of volume fluctuations, real risk/reward mechanisms, termination scenarios, and services guarantees and penalties.

Pricing models might seem simple, but the devil is in the details.

The “best” model is not necessarily easy to identify. IT infrastructure service offerings tend to come in standardized formats that may appear largely the same from vendor to vendor – at least on the surface – but newer pricing models may provide greater opportunities to develop stronger working relationships.  

Many of the newer pricing models are based on consumption, especially with cloud computing, but also, to some degree, in traditional IT outsourcing deals. However, you might find consulting-based options and customized or unique services which could more appropriately address your company’s long-term goals, ongoing operations and service level needs. Ultimately you want pricing that supports flexibility, allowing you to maintain your baseline IT infrastructure service but smoothly adopt change that helps you grow.

You’ll need to identify what sort of support you’ll require and determine how different pricing models adapt to changes in scope, volumes, technology, and strategy.

You’ll have to weigh the trade-offs.

In many ways typical IT infrastructure service pricing models are similar to mobile phone pricing structures:

  • You can pay only what you use. Service offerings are divided into categories, and what you pay depends on which resources you use and the volume.

---OR---

  • You can obtain a fixed plan that provides a specific amount of usage for a predetermined, consistent cost. Optional additional usage usually comes at a higher rate.

---OR---

  • Somewhere in between.

For example, some cloud vendors offer “reserved instances” that guarantee a lower rate, but for a longer-term commitment. A longer commitment assures more stable, predictable planning for you and for your provider, but it makes finding the right fit that much more important.

Some cloud vendors also offer “spot instances,” a bidding process for unused resource that could bring you lower rates if you can be flexible. But you must be able to handle the uncertainty regarding what you’ll be paying each month.

Even traditional IT outsourcing providers are starting to provide usage-based pricing, usually with some form of minimum commitment.

So you can choose short-term or long-term commitments, fixed or bid-based pricing. You may even be able to negotiate introductory pricing.

The best pricing model for you is the one that best supports across-the-board business success -- your strategic goals as well as day-to-day IT infrastructure service requirements. You want the lowest cost with the highest performance and reliability, in reality a combination of factors that differs for each company. In the end, you’ll have to balance costs and opportunities, risks and benefits.

Professional advisory services can help.

Wading through the evolving intricacies and complexities of various pricing models and truly understanding the ramifications of each option can be overwhelming. Any missteps can ruin the eventual outcome of IT infrastructure service solutions, and even place your company at risk. Consulting an IT advisory service can help you make the smartest, most profitable pricing decisions.

Photo Credit: Faul

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