Which pricing model works best?

h2index was contacted by a large manufacturing company to help them understand the different pricing models used for service desks as they prepared a request for proposal (RFP) for the provision of their global service desk.

The study investigated which pricing models were used by the most innovative multinational companies. The two commonest models are per seat and per ticket.

The client wanted to know which pricing model is best, the most common, and how companies use the models to influence and incentivise good behaviour both by the vendor and by users, for example:

  • reducing the number of tickets
  • increasing the percentage of first time fixes
  • encouraging users to use cheaper support methods

Some of the results are shown below: the companies were specifically chosen by h2index because of their innovative approach to managing service desks. The contributors included consumer goods, finance, chemicals and communications companies: all were multinationals. Typically the person responding was the director of user services or head of infrastructure.

Phil Hopley, partner, h2index “Using our network of contacts in large corporations, we delivered our report to the client within two weeks.”

Two thirds of respondents operated a per seat approach, one third a per ticket approach. Most also adapted the contract to achieve specific objectives, particularly to find ways of encouraging users to use less expensive forms of support.

Pricing models

There were strong arguments in favour of both models and it was clear that either can be made to work well.

The clearest outcome was that regardless of the basic model used (seat or ticket) there was a 100% correlation between adjusting the model and satisfaction. The four organisations that used either basic model were all unhappy with their service. The more thought that was put into fine tuning the model, the more successful it was. Each company made different adaptations, designed according to their specific needs.

Adaptations to pricing models

There was strong evidence of a growing maturity and change in the relationships between clients and vendors. Historically service providers’ sales teams were incentivised solely on bringing in revenues and not upon profits. As clients seek efficiency, the “per ticket” model potentially reduces the income for the vendor. It is better to incentivise the vendor to encourage users to use cheaper methods: cheaper for both the client and the vendor. Astute vendors realize that this enables them to improve profitability even if their revenues are lower.

Simon Bennett, partner, h2index “Companies have wrangled over which model to adopt, but it’s clear that either can be made to work, provided it is adapted. The critical issue is that organisations understand the behaviour that they want from their vendor and user community, and adapt the contract accordingly.”