Overview

Input-based pricing is based on the supplier's units of resource input to provide services. The most commonly-used structures are FTE-based and Time & Materials (T&M).

Output-based pricing is based on the buyer's units of consumption/volume of transaction. The most commonly-used structures are the baseline and banded pricing.

This viewpoint focuses on comparing the two pricing models viz. input-based and output-based and addresses the challenges faced by buyers in transitioning to an output-based model. In addition to comparing pricing model adoption in AO and IO contracts, the document also covers buyer and supplier motivations to shift to a new pricing model and provides guidelines on when to choose an output-based pricing model.