For enterprise TEM leaders with or without TEM industry experience, the cost of partnering with a TEM will always be a leading question. The TEM program’s return on investment (ROI) must be clear and positive. The business case should also be strong.
Prior experience with some TEM providers may have included overpromising and underdelivering, creating apprehension. Similarly, someone without prior experience will also be naturally apprehensive. Conversely, others may have realized significant savings and process improvements, but the prior TEM provider may have been acquired or services are now outsourced to other parts of the world.
In any regard, an enterprise leader needs to partner with a TEM provider who will deliver strong results that align with the needs of the organization, have strong service level agreements (SLAs), savings guarantees, and who can deliver actual realized savings and significant process improvements.
TEM Discovery Process Expectations Around Value & Risk Mitigation
When vetting prospective TEM providers, it is wise to consider different pricing methodologies to ensure you fully understand the value proposition. It is also best to have realistic expectations around the cost of TEM services for your organization’s needs and fully understand the proposition regarding the return on investment.
The following provides a general overview for evaluating the pricing associated with TEM services.
TEM Cost: The Five Most Common Methods
1. Percentage of Spend
Most TEM firms have traditionally charged based on a percentage of spend under management, especially regarding fixed services. The percentage typically ranges between 1% and 5% of the aggregate spend; the sliding scale percentage decreases as the total spend increases.
For example, a large enterprise company may have tens or hundreds of millions in annual telecom spending under management with a TEM provider. Given the overall volume, a large enterprise would expect to pay closer to 1% of the total spend under management.
This exceptionally large program would scale to permit 1%, whereas a much smaller enterprise, such as a company with less than one million in annual spend, would yield a more significant percentage closer to 5%. Due to the larger average dollar amount of each invoice typically found in larger enterprises, the TEM provider gets a quantity of scale efficiency and passes that along to their clients.
Technology research organizations like Gartner monitor the market and publish annual reports and guidelines for what to expect relative to TEM pricing. Staying abreast of the current research promoted by companies such as Gartner while in your TEM provider discovery process is crucial.
When comparing TEM providers, evaluate how they get to their percentage as closely as possible. Beyond this, can they provide evidence and contractual assurances (e.g., we do this at Tellennium) that they will save your organization more than the cost of the TEM services? Are they willing to promise this contractually?
A strong TEM partner will stand by the claim that they will definitively provide more savings value than the cost and will offer contractual protections within the agreement to allay concerns around performance expectations.
2. Flat Rates for Invoice Management
Some TEM firms may also offer a flat rate option for invoice management services. This option includes invoice processing and potential payments thereof and may also include some audit and optimization scenario services. Be sure to read the Scope of Work (SoW) thoroughly to understand what services are included and what may be missing.
Some Enterprise leaders like this model for its budgeting simplicity as it avoids variable costs. The overall pricing may also be cheaper in some circumstances than in a gain-share pricing model.
However, the caution here is that some TEM providers may not be as strongly incentivized to recover savings as they would be in the gain-share model, where the potential financial upside can be more significant.
Also, there should be a scale of multiple tiers if the organization reduces its size or has significant growth, for the protection of both parties.
3. Gain Share Model
Under this model, the TEM provider absorbs all risk relative to the labor performed on behalf of its enterprise client. With this type of compensation model, the TEM firm receives a percentage of savings that their services delivered to their client. For example, the percentages vary widely based on circumstances, typically vary from 25% to 50%.
Caution should be taken for any offer where the TEM provider bills upfront for expected savings and credits with recurring invoice management services. This model should be based on proven ‘realized’ savings and credits only. This ensures your organization receives the savings benefit prior to paying for the cost of it.
Savings opportunities should be presented as recommendations for the Enterprise to approve or deny, not just get billed for findings that never actually get implemented. Additionally, once approved, it should be the responsibility of the TEM provider to implement through to fruition and provide proof of savings.
The main factor influencing the percentage is the quantity of spend under management. The larger the spend the less of a percentage. Negotiating an exceptionally low percentage may not be in the best interest of the organization. Keep in mind, this is an incentive-based model, the TEM provider may have other customers with a higher rate and is more incentivized to devote their time to them.
In the end, there will be numerous factors that a TEM firm will consider when getting to this figure. Ensure you understand what those factors are so you can evaluate the arrangement for fairness and equitable partnership for both parties.
One-Time Audit & Optimization
With respect to one-time audit-related activities, many firms will take the agreed-upon percentage of savings after they are realized. This is important because this means minimal risk for your enterprise.
However, in a one-time audit and optimization scenario without invoice processing, it is typical for a TEM to bill half of the expected savings and credits upfront and the other half when the proven savings and credits are realized, balancing out any discrepancies between the expected and realized savings.
Recommendations accepted for implementation will result in savings calculations for one month. This figure will often be multiplied by twelve, twenty-four, or thirty-six to calculate a “1, 2, 3 years annual run rate.” The basic idea here is that the savings identified via network adjustments will generate savings forward.
TEM providers will bill against the twelve, twenty-four, or thirty-six months of savings. Twelve months is typical for a medium to large Enterprise.
4. Managed Mobility Services (MMS)
When evaluating how a TEM charges for managed mobility services, this is typically done on a per device charge per month. Charges per device can range between vendors, but most will price this way, so comparisons – at least at the cost level – will be straightforward. Expect device charges to range from over $2 to $8 per device, depending upon the scope.
Optional pricing will be offered depending on the full scope of services desired. For example, some enterprises may need more help desk support or have greater kitting and logistical needs. Naturally, as the scope increases, so will the per-device charge.
When evaluating MMS pricing from TEM vendors, the essential items to consider are device count, device type, and the per-device charge. Pricing can often be referenced via a matrix reflecting lower per-device charges as device counts increase.
As mentioned, project scope is an essential influence on the ultimate per-device charge, involving variables associated with these services/devices. For example, corporate-liable smartphones will have a slightly higher per-device charge than corporate-liable tablets or basic cell phones.
Other factors, such as devices requiring only data, will be less, and there will also likely be separate device pricing based on volume for mobile device management (MDM) within scope.
In sum, the per-device charge is determined via the total volume of devices and the level of effort required to satisfy support outlined within the project scope for these devices. Don’t be afraid to inquire deeply into the TEM provider’s assessment of the level of effort relative to per-device pricing if you have concerns over the quoted per-device charge. Of course, experience also plays a part in the evaluation.
5. Other TEM Pricing
Some TEM firms will also offer pricing options based on the total number of accounts under management or the total number of invoices processed. There may also be adjusted pricing based on electronic data interchanges (EDI) distribution vs. paper invoicing.
At Tellennium, we do not charge in these alternative ways of assessing the level of effort. Still, suppose a vendor offers this type of pricing. In that case, you will want to perform a thorough analysis and comparison to other TEM vendors to determine if the offer is competitive overall, irrespective of the unique way that vendor arrived at their quote.
Final Thoughts on TEM Program Costs
For those enterprise expense management leaders evaluating TEM providers for the first time, having a firm grip on the basics is extremely important. The good news is that you’ve realized that you need TEM help. Now, the focus can be on a thorough discovery process to help you determine the best TEM provider to partner with.
We recommend a thoughtful and purposeful discovery process, i.e., don’t rush into decisions until you are comfortable with all the facts and have completed your research.
Whether your discovery process is more ad hoc (speaking with a few providers) or part of a more formal RFP process, performing this comparison is crucial to determine which partner is the right choice for your organization.
Again, we strongly recommend consulting the appropriate industry-leading authorities, such as Gartner, for the current industry-related research on the TEM industry and related pricing information before signing on with your new TEM partner.
If you’d like to include Tellennium in your TEM vendor comparisons, contact us to schedule a brief demo of our solution.
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