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“How should I charge internal customers for the services offered?” There is no single answer to that question, so it’s important for shared services leaders to select a pricing model based on the balance between efficiency (how costs are charged out) and its effectiveness in influencing customer behavior (i.e., accuracy).
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Recent research from the Gartner Finance research team offers guidance to shared services leaders on weighing the pros and cons of shared services pricing models.
This article recaps their key points, edited for clarity and length.
How shared services organizations charge
Some shared services organizations (SSOs) don’t charge, while some use a simple allocation methodology. Others use elaborate activity-based costing to determine variable-based models. One of the main reasons to charge customers is to encourage them to “do the right thing” for the enterprise and fund process improvement.
Certain pricing mechanisms can ensure that customers are vested in forecasting or managing their demand for services and supplying the quality inputs required for shared services to do its job. They prevent customers from overutilizing or underutilizing services.
Some pricing models provide a basis for accurately reflecting the cost of services and enable comparisons to external pricing. However, other models can also trigger resistance and lead to “I’ll do it myself” behavior by customers, leading to reduced customer commitment to working with shared services.
Gartner research highlights five different shared services pricing models.
Learn more: Shared Services Strategy and Structure
SSO Pricing Model No. 1: Cost center model
This is the most basic model, generally used when shared services is a centralized support group without separate budget. As a result, the cost is typically borne by the broader organization and not allocated to business-unit customers directly.
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SSO Pricing Model No. 2: Fixed allocation model
This is usually one of the simplest models to implement. Business units are charged a flat rate or a percentage of costs depending on a predetermined metric (for example, the number of full-time employees using the shared service). Price is calculated irrespective of the volume or type of service.
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SSO Pricing Model No. 3: Variable model based on actual volume
With this model, pricing for each business unit varies based on the volume and complexity of services consumed. Customers requiring a higher volume of service or complex practices that deviate from the norm pay more than others.
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Read more: 3 Ways to Show How Valuable Shared Services Can Be
SSO Pricing Model No. 4: Market-based model
In this model, price is decided or influenced by external competitive market rates for a similar service.
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SSO Pricing Model No. 5: Cost-plus model
This model is similar to the previous market model, but adds a profit margin. The shared service organization therefore acts as a profit center, aiming to reinvest revenue to improve service, technology or infrastructure.
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Learn More: 13 Key Activities for Shared Services
This article has been updated from the November 2019 original to reflect new events, conditions or research.
