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Charging Customers and Setting Prices in Shared Services

Unlike a traditional corporate activity or a move towards centralized processes, Shared Services has typically considered an independent “business within the business”, following a customer-focused approach and often charging out for services using a pricing/charge-back model.  While pricing can be a method for recovering costs, it can also play a role in the change management process by influencing the behaviors of customers by supporting greater standardization and a shift away from higher-cost activities. 

As discussed below, only 36% of member companies use a service pricing model, with many relying on other methods to influence customer behavior and implement more efficient standard processes.  Regardless of the approach selected, there are important lessons to be learned from understanding the design at companies that include service pricing as part of their strategy.

Recently, a Peeriosity member company with business activities in all major geographic regions, except the Americas, discussed the important role that pricing has played in the implementation of Shared Services as part of a members-only PeercastTM in our Shared Services Leadership research area.

The feature company described its interest in developing a commercial model where internal customers were charged for services.  Here are some reasons why: 

  • To provide business units with a fair and transparent cost allocation for services provided.
  • To enable both Shared Services and internal customers to focus on cost reduction and the efficient use of resources, and also to encourage greater compliance with standard processes.
  • As an enabler for continuous improvement, to be a key lever to measure success with a target of 6% to 10% savings per year.

Here are a few of the key challenges identified by our feature company:

  • Services and costs were not transparent to internal customers, with no clear visibility to business units about the true cost of the services they were using.
  • Performance metrics were not clearly aligned to stakeholder and customer needs.
  • There was no robust way to produce “what if” financial modeling in anticipation of increasing the volume and types of services that could be delivered by Shared Services.
  • A lack of visibility around governance, where customer expectations were not adequately measured or aligned with Service Level Agreements.

To address these challenges, the featured company developed an Activity Based Costing (ABC) model of approximately 50 services, with defined cost drivers for each activity and with costs allocated to each activity based on the time and level of effort required to deliver the activity.  Standard times are determined annually with changes made only when there has been a significant modification to the work activity.

Benefits identified by implementing a service pricing model include:

  • Providing customers with a fair and transparent cost allocation based on true consumption.
  • Highlighting areas where services are being delivered using non-standard or manual processes.
  • Enabling Shared Services and customers to both focus on cost reduction and create incentives for the right behaviors.
  • Transactional costing analysis can be done at a very detailed level, which provides a greater focus for continuous improvement initiatives.

An iPollingTM question supporting the PeercastTM indicated that only 36% of member companies use service pricing as a method to charge customers, with 20% deciding not to and 40% never formally considering the idea.

status of utilizing Setting Prices in Shared Services ipolling results

The reasons why so many companies do not utilize service pricing might be suggested in the follow-up chart, where only 16% of member companies indicate that they use incentive pricing as a way to influence customer behavior.

ipolling use of incentive pricing Setting Prices in Shared Services to influence customer behavior

In addition to service pricing, some other levers companies can pull to influence customer behavior include a robust performance measurement program, a strong relationship with key customers and stakeholders, and an effective governance committee.

Here are some of the additional comments about pricing from members:

  • We used to allocate costs for services but decided that it wasn’t worth the effort. We only allocate to foreign legal entities for Tax purposes.
  •  We currently set a price by service for budgeting and planning purposes and then true up to actual costs through a combination of direct costs and indirect cost allocation to all the service areas. Long term we would like to set a fixed price with a small margin to cover fluctuation. At that point, we would consider implementing some pricing incentives to influence behavior, especially around the price of last-minute processing requests and requests for overnight mailings.
  • We have decided to drive change through our Global Process Owner governance structure and not through pricing.
  • We have standard pricing, but charge premiums for services that are used outside of the preferred methods.

Does your company set prices and charge out for services to internal customers?  If yes, does doing so help you partner with customers to stay focused on process improvement and standardization efforts?  Do you use incentive pricing to influence behavior?  And if not, how do you get buy-in from customers for changes that might reduce both cost and customer service flexibility?

Who are your peers and how are you collaborating with them?


“PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion.  Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content.  Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member.  Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees. 

 “iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.

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