Pricing models define how a supplier is paid — and therefore who carries the effort, volume and outcome risk.
Fixed. The price is agreed upfront regardless of actual effort; the supplier carries the effort risk.
Variable. The buyer pays for actual effort and carries the volume risk.
Hybrid. Fixed and variable elements are combined or tied to a measurable result; upside and risk are shared.
| Group | Model | Billing basis | Risk mainly with |
|---|---|---|---|
| Fixed | Fixed price | One amount for a fully specified scope | Supplier |
| Fixed | Milestone-based fixed price | Fixed instalments on acceptance of defined milestones | Supplier |
| Fixed | Package price / lump sum | Fixed price for a standardised service package | Supplier |
| Fixed | Retainer | Fixed fee per period for reserved capacity or availability | Buyer (utilisation) |
| Variable | Time and materials | Actual hours or days × agreed rate | Buyer |
| Variable | Capped T&M (not-to-exceed) | Billed on effort up to a contractual ceiling | Shared |
| Variable | Drawdown against a rate card | Days per role called off at pre-agreed rates | Buyer |
| Hybrid | Fixed price with success fee | Fixed base plus a variable share if targets are met | Shared |
| Hybrid | Gain-sharing / risk-sharing | Share of a measurable result, e.g. realised savings | Shared |
| Hybrid | Target cost with bonus/malus | Agreed target budget; under- or overrun is shared | Shared |
Choosing a model. The clearer the scope, the better a fixed price fits; the more open it is, the better capped T&M fits. Proposals are only comparable if all suppliers bid on the same model.
Synonyms: Commercial Models, Fee Structures, Engagement Models