Negotiating IT Services – How Much Is Too Much?
General Outsourcing

Negotiating IT Services – How Much Is Too Much?

By Abhideep Bhattacharjee September 03, 2020 - 965 views

How to negotiate for an IT service?

Many of my clients find this a baffling question. And what should have been a negotiation of cost vs features/choice of platform, ends up being a bargain.

But they are not to be blamed. Though the last decade has seen an increase in the overall awareness of the tech side of IT services (people now understand what they are asking for) but the number of people understanding the business side of it is still marginally low.

Everything can be done at a lower price, well, almost everything. Margins can be continuously pushed to the bottom. There will always be another vendor who will do the work for a lower cost. But the cost that you pay for your project is not just the cost for software development. Here are some of the other factors that you are paying for (or choosing not to):

1. Brand Value:

A bigger company has a reputation to live up to. It will do all it can to maintain that hard-earned reputation by making your project a success.

2. Cost of Experience: 

A bigger company cumulatively has more experience. They have already been exposed to most of the challenges your project is going to face and have solved them. Resolution time will be shorter.

3. Better Skill: 

Bigger companies hire from the upper strata of a city’s skill. Since these resources are expensive, smaller and mid-sized companies cannot always afford them. Though it is not universally true that a higher-paid resource is by rule better than a lower-paid one, but when we generalize performance with pay, we do find that performance tends to improve with experience, exposure and pay grade.

4. Support System: 

Larger companies have more teams and employees which enable them to route resources, both human resource (developers) or knowledge resource (internal consultation of senior PMs and architects) to provide a robust network of support systems to keep the project moving forward without losing teams. Smaller teams and companies often face a roadblock in such situations and wait for resources to free up or external consultants to mitigate the blockage.

5. Customer Relationship:

Larger companies do not make much profit from the first project. The actual profit is made from returning projects from existing clients. Thus Client Relationship Management is highly valued by a large company. Not only does the company invest in developers to get the project delivered, it invests heavily on improving customer experience. For example, my organization has a different team altogether called the Customer Success Managers (and I was a part of this team for over 2 years) who form a bridge between the delivery team and the customers and are busy round the clock to internally audit the project, updates, deliveries and communications to ensure the client gets what he/she is paying for and if possible, a little bit more.

These are some of the factors that you need to consider while negotiating the value of a project. If you are comparing apples with pears, then it is an inappropriate comparison. While negotiating IT services, consider the overall service package and not just the cost of coding.

Page Scrolled