Infosys moving towards result-based pricing

The IT industry
is known for a business model where revenues are directly linked to the number of employees meaning that revenue is a function of effort. Taking a transition in its pricing mechanism, IT major Infosys is now turning towards outcome-based pricing model that pays for results and not performance.

According to Subhash Dhar, senior VP and EC member of Infosys, the outcome-based pricing model is a non-linear model and it will increase efficiency without increasing employee head count.

The model improves revenue per employee as margins for this ranges from 25-35 per cent as against 10-15 per cent for the fixed pricing models, he added.

The new model contributed 3-4 per cent of Infosys’ revenue last fiscal and Dhar plans to take it to 10 per cent of the overall revenue in two years.

“Interestingly, 14 clients have already signed for the new model. If we can pull this off this really will mean a generation change for the kind of engagement models that clients will get from the industry,” he pointed out.

While Infosys is betting big on the new model, analysts say the model is not without risks. The model works only with experienced clients and there are chances of increased number of disputes with clients leading to wastage of time.

Further, as long as Indian companies do not diversify into products and hardware and remain primarily service oriented, the revenue upside would be limited.

“It is a promising model but risky for both parties. It will take some time before people will accept the model as a de fact standard,” said Akhilesh Tuteja, ED, Advisory services of KPMG.

Despite many challenges, Infosys has started deputing specialised consultants with all its sales team to pitch the new model to clients.

Clearly, Infosys’ aggressive plans seem to be working for now.