Examining Services Procurement SOW Adoption: Exploring Pricing Models

This post references material from the Compass series report: Overcoming Challenges of Project- and SOW-based Solution Adoption. This paper is available in the Spend Matters Research Library and is free to qualified practitioners.

One area where SOW enablement and programs are less defined is in pricing (for software support). In contrast to standard VMS deployments, where the norm is to have suppliers pay for the software fee (and MSP fees), SOW spend is less defined.

There isn't a set standard here, and a variety of pricing models have maneuvered their way into SOW deployment models, in certain cases, even within the same organization! Companies may be budgeting and paying for SOW programs in different ways across functions and categories. According to the companies we've surveyed recently, pricing models can run the gamut, including:

  • Percentage of spend (with caps)
  • Fixed annual costs for a usage/license (subscription fee)
  • Perpetual license (software)
  • Fixed fee (per-transaction)

Payment approaches and mechanism may vary for SOW, but so too does the notion of who pays (and how much, in general). Several companies we recently surveyed were evenly split between situations where suppliers assumed fees and buyers assumed fees (though larger deployments tend, at least in what appears to be a simple majority of cases, have fee models where buyers typically assume the cost, although this is certainly not a rule for bigger deployments).

In general, it is safe to say there is not a predominate standard. Moreover, category nuances can require additional pricing scrutiny in cases such as business process outsourcing (BPO) with customized fee components, management elements and deliverables.

Curious to get learn about all of the SOW pricing models we're seeing in the market and best practice tips for SOW deployment? Download: Overcoming Challenges of Project- and SOW-based Solution Adoption in the Spend Matters research library today.

- Jason Busch

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