How Do You Price Your Service Catalog Just Right?

Typically, companies view IT service catalogs as a way to cut down delivery efforts and drive easier self-service for those requesting IT services. Imagine a new business unit at the regional headquarters — it could place a requisition for 30 laptops, with varying specifications and software needs.

For this, the business unit would have to fill out several forms, go through multiple intermediaries, and finally, get the requisition fulfilled from the global IT HQ.

The IT service catalog tries to cut through all of this clutter and bring service requisition/delivery into the 21st century. Instead of cumbersome forms, and outmoded portals, you have a consumerized interface, where the BU can “shop” for the 30 laptops it needs.

But there is a caveat to the simplicity: without a smart pricing strategy, your service catalog risks turning the IT enterprise into an “order fulfiller” rather than an innovator or a specialized broker of technology services. In other words, without correct pricing, an IT service catalog is only a superficial layer that causes a lot of lost opportunity costs over time.

This brings us to the million-dollar question: How do you price IT service catalogs, striking that perfect balance between cost-efficiency for your internal customers and adequate margins for sustained delivery? Here are some battle-tested models:

● Cost center — You “hide” the cost of delivering a service, absorbing it as part of centralized IT budgets.

● Fixed-rate pricing — Every business unit must pay a fixed rate for a specific service category, depending on its nature of work or size. This approach isn’t particularly agile and is more suited to mature (non-growth oriented) organizations.

● Volume-driven pricing — You can choose to give a volume discount for BUs that subscribe to a service on a regular basis.

● Market pricing — You can write crawlers to scan the third-party marketplace for similar services, and price your internal catalog at a slightly lower rate.

● Cost-plus model — This is an increasingly popular idea — it opens up the IT service catalog, involving free participation from external stakeholders. This allows you to commoditize and monetize your specialized IT capabilities, and unlock revenues.

But no matter the model you choose, it is the foundational strategy that forms the crux of your service catalog’s success. It no surprise, therefore, that the no.1 challenge for most companies (over 1/3rd — 35%) is developing a fair and meaningful pricing methodology for their IT service catalogs. To navigate this better, here are four useful tips.

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1. Start with an IT service portfolio before building a user-facing catalog.

You could define a service portfolio as a summary of the technical aspects of a particular service/offering. It includes the cost of components, the risks of procuring and delivering the same, the business cases to which it can apply, and the value proposition it brings to the user. All of this is black-boxed in your final service catalog — the BU sees only laptops and specs, while the portfolio would include a detailed breakdown of the components, a summary of the supply chain, associated risks, etc.

An IT service portfolio starts you off on the right foot, with clear visibility into the minimum viable price for every service/offering.

2. Don’t use gross margins as the baseline for your service catalog.

It might sound obvious, but this is a common pitfall faced by many companies that are eager to pass on the cost benefits of internal procurement. Gross margins refer to the hard spends that you determine in the first step, as well as recurring costs like maintenance and service. Companies that stick too close to this baseline will risk operating their service catalogs at a loss, which is why the next tip is so important.

3. Opt for value-based pricing, built on user analysis.

Value-based pricing tales into consideration three things — gross margins, market research (you can obtain this via crawlers), and quantifiable, differentiable value of the services you provide. Let’s say that your centralized IT HQ disburses 30 laptops to the business unit — does this save their money, as opposed to procuring from a local vendor? If you deliver the laptops in three days, vs. ten days, what is the impact on revenues? What is the recurring value the BU expects from this service? All of these are quantifiable measures and should go into your service rates.

4. Carefully evaluate business needs.

The previous step garnered a price-point that would get you enough ROI to make service delivery viable in the long-term. You can combine this with an analysis of the user’s unique business needs to find out exactly how much they might be willing to (and might be able to afford to) pay for the service. This step is particularly important if you are going for a cost-plus model, as there are no internal budgets to guide you.

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Fortunately, recent tech advancements make it possible to accurately execute the best-fit pricing strategies for your catalog. For example, ServiceNow’s configurations for service catalog customization lets you modify a Pricing implication’s field, where you can attach a specific value based on the customer’s/user’s attributes.

AWS service catalog, as well, is eager to simplify pricing — you can integrate it with AWS budgets, to price internal AWS services, and receive alerts if you approach your set budget thresholds.

Thus it important to think going forward to introduce dynamic pricing, tiered pricing and multi pricing into service catalogue so that you maintain one service catalogue which can integrate with ecommerce engine, employee portal, distributor portal and partner portal so that pricing is live, relevant and as well integrate for managing services like order entry, order management and product configuration.

I would like you review following offers from ServiceNow; Catalog Machine; CloudFx and as well as Flipsnack before finalizing how to put in place pricing attributes or strategy for service catalogues.

These technologies will prove integral to large-scale service delivery platforms, particularly as companies start to open up and become more market-facing. Remember, agility in pricing is a necessary companion to good design and robust logistics when it comes to IT services.

To discuss any of the insights shared here, please contact me at [email protected].