Lay the foundation for good pricing

What makes a good pricing structure? Can you confidently answer that question? Many people I talk to struggle with this question so let's consider a few fundamental points that help lay the foundations for a good pricing structure.

The first point is clarity. There should be clarity with regards to who has financial responsibility for assets (hardware, software, premises, consumables etc). Likewise, there should be clarity about how usage-based costs are counted.

The second point is separation of independent charges. For example, one-time costs should not be mixed with ongoing costs and pass-through costs should be separate from usage costs.

The third point is variability of usage costs based on consumption. The price should vary based on the volume of service used by the client. Resource units is the name typically given to the items counted for volume-based usage costs.

If we consider what makes a good resource unit, a few key points spring to mind:

• It should be easily and accurately countable;
  
• It should not become obsolete or outdated quickly (eg. CPU speed);
  
• Consumption of the resource unit should be under the complete control of the buyer and therefore the buyer can forecast future consumption;
  
• It should relate closely to the supplier's cost drivers; and
  
• It should be independent of other resource units

If that starts to give you a feel for what makes a good pricing structure, then look forward to a future blog where we push further into some of the finer points.

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Michael Rehkopf

Michael has more than 20 years of experience in operations, strategy and sourcing covering all major parts of the globe. He has also worked for Australian, Canadian, German and Japanese companies in both business process outsourcing and IT outsourcing.
Michael's industry experience includes the financial services, manufacturing, telecommunications and travel sectors. He leverages this diverse industry experience and his university background in accounting, IT and his Master of Dispute Resolution, to assist clients in the development of business strategies and the implementation of sourcing strategies. These include the associated evaluation, negotiation and organizational change.
Michael is currently a partner at TPI, the world's oldest and largest sourcing advisory firm. Prior to joining TPI, Michael held leadership positions with Siemens Business Services, OpenPlus International, Mitsubishi Electric and Netron.