Using benchmarks to establish rates for outsourcing services

When outsourcing IT or business processes, contract life is often five years and can be as long as fifteen. This presents both buyers and vendors with a challenge. How can they ensure that the client pays a fair market price throughout, when long-term price changes are impossible to predict accurately? A benchmarking clause enables both client and vendor to carry out an external, objective appraisal of "value for money" during the life of the contract, and for prices to be adjusted based on the findings of the process.

As IT outsourcing has matured in the last ten years, two benchmarking methods have emerged - the "price-down" approach and the "cost-up" approach.

The price-down method compares the prices paid by the client against real market prices paid by other customers who buy similar services. This method works as long as price data for similar services is readily available. Where price data is available, but for different services, adjustments must be calculated to produce a fair market price.

Download the whitepaper from Compass Consulting: Using Benchmarks to Establish Rates for Outsourcing Services
By Neil Barton