What Are the Billing Requirements for IT Services?
IT Services Billing Can Evolve
Billing for IT Services today has evolved. Today, billing requirements are much more complicated as Services providers must be able to offer value and flexibility simultaneously to clients.
Rather than maintain bloated IT departments, many businesses would rather outsource non-essential tech activities. Doing so creates capacity for internal IT professionals to focus on higher-order activities. As a result, IT Services has become a very competitive space. Pricing and packaging of IT Services can offer strong differentiators in the crowded industry.
Those who provide IT Services need sophisticated billing capabilities in order to offer competitive pricing for their products and services. Here, we take a closer look at what IT Services companies need in a billing solution to remain competitive over the long haul.
How IT Services Companies Traditionally Billed Clients
The history of IT Services is closely tied to the history of computers.
The first electrical computers that could solve equations and store memory were developed in the 1940s. These room-sized machines functioned more like calculators initially.
Over the following decades, programming languages, GUIs, and component advancements made computers more accessible for public and commercial use. Although the first office application emerged in 1951, it wasn’t until the late 1960s when information technology took off.
Companies like Apple, Microsoft, and IBM built on this momentum and helped launch the era of personal computing in the 1970s and 1980s. The 1990s were marked by open-source software and the rise of the World Wide Web.
During this time, IT Services providers started out charging licensing fees for on-premise applications. Then, the internet helped usher in managed hosting services and the first software-as-a-service (SaaS) models. By the late 1990s, businesses were paying for off-premises applications via subscriptions.
In the 2000s, companies like Salesforce and NetSuite launched SaaS ecosystems and application suites that included different kinds of functionality. Salesforce, in particular, pioneered the “freemium” business model when it allowed companies to test its cloud-based SaaS platform for free for the first five users. Clients could easily scale up per user or upgrade for more functionality.
Today, a vast majority of IT Services are provided over the cloud. While Salesforce’s original pricing strategy is still relevant, many new tactics are now possible thanks to the power of cloud computing.
Billing Requirements for IT Services Are Changing
Leaders and users expect tremendous flexibility today when it comes to paying for IT products and services. As a result, billing requirements are changing for IT Services providers.
Those who wish to compete need billing solutions that are much more than static, back-office functions. Instead, billing systems for modern IT Services must:
- Facilitate innovation
- Integrate with other enterprise applications
- Enable multi-regional growth
- Protect customer data
Industries change rapidly today at the hands of disruptive models and technologies. IT Services providers that serve a wide range of businesses must be able to respond to trends and deploy new pricing tactics. Otherwise, they can’t serve clients effectively over the long term.
To maximize revenue, leaders of IT Services companies need billing solutions that can integrate seamlessly with existing infrastructure. Billing data must be able to flow freely between critical applications, enhancing processes that impact multiple systems.
One of the major advantages of IT Services providers is that they can serve clients all over the world. Leaders who want to expand globally need billing systems that support multiple languages and currencies. With a country-agnostic billing solution, businesses can tap into new markets and customer segments.
In the 2020s, protecting consumer data will continue to be a hot topic. IT Services providers must be able to protect private billing information and limit access only to those who need it. Data breaches can quickly damage a company’s reputation in the space and put many people at risk.
What Billing Capabilities do IT Services Companies Need Today?
The following billing capabilities are essential for today’s IT Services companies:
Sophisticated Account Management
IT Services providers often need separate contracts with different units within the same enterprise. Some even have unique obligations for various teams within the same business unit.
It’s vital for IT Services companies to have flexible account management capabilities that enable them to establish hierarchies, define custom payment terms, and tie billing data to individual accounts. As companies demand flexibility, even for pricing across internal teams, having complete control over account management will become increasingly important.
Those who can collect and synthesize billing data effectively are able to enhance pricing tactics as needed after they are deployed. IT Services providers need real-time reporting capabilities that enable leaders to visualize key performance metrics about every product and pricing tactic.
Those who can’t dig into billing productivity leave growth opportunities on the table or allow wasteful practices to persist within their businesses. IT Services companies, in particular, should be able to study trends related to their as-a-service or product-specific offerings so that they can price more strategically.
IT Services companies are at the forefront of billing innovation. Leaders are continually exploring new ways to charge customers based on how they engage with certain products and services.
A robust mediation capability is now a must-have for any IT Services provider that wants to bill based on specific end-user behaviors. Through mediation, these companies can transform raw usage data in any form to billable information. For example, they can charge by the second for cloud computing services or per database query. In many ways, mediation is key for unlocking billing innovation in the IT Services world.
Finally, IT Services companies that operate at scale must be able to create automated workflows that can execute complex billing tasks without any manual intervention. Automation is the only way for businesses to manage numerous pricing tactics without burdening finance teams. A well-designed workflow engine is easy to navigate, and simplifies the process of configuring workflows for any pricing tactic.
Beyond these capabilities, others are important. However, these four are critical for IT Services companies in particular that operate in the Digital Age.
What Pricing Models do IT Services Companies Deploy Today?
IT Services companies use a wide variety of pricing models today, many of which give clients significant flexibility over how they pay for products and services.
Below is a list of commonly used tactics:
- Consumption, or usage-based, pricing
- Flat-rate pricing
- Incentive-based pricing
- Per-feature pricing
- Per-user, or per-active-user, pricing
- Shared risk-reward pricing
- Subscription pricing
- Tiered pricing
Some businesses stick to one pricing strategy, while others offer several. For example, freemium pricing works well for companies like Dropbox that want to prove their value upfront before charging end users for additional storage space. Many digital marketing companies, on the other hand, offer a combination of subscription and tiered pricing. They give clients access to different sets of features at various subscription levels. With most top-notch providers, upgrading or downgrading is easy.
There are thousands of ways to combine these pricing models, and many new iterations are surfacing every day. With the right billing solution, IT Services companies can test multiple pricing tactics simultaneously until they find the one that perfectly suits their unique offerings.