Internal Pricing
Internal Pricing refers to the financial model where Internal Product Teams charge Stream Teams for their services, creating a market-like interaction within the organisation.
Goal
The primary goal is to ensure that Internal Product Teams align their services closely with the needs and priorities of Stream Teams, fostering accountability and efficiency.
Context
Internal Product Teams are monopolies within the organisation, providing essential services that Stream Teams rely on. And monopolies are not known for their efficiency or customer focus. In order to break the monopoly we need to introduce competition. This can come in the form of external competition, where we let Stream Teams purchase services from third parties, or internal competition, where we create duplicate Internal Product Teams and let Stream Teams choose which one to use.
For this to work we need to introduce internal pricing, where Internal Product Teams charge Stream Teams for their services. Stream Teams can then choose which services to use based on price and quality. This incentivises Internal Product Teams to focus on the needs of Stream Teams and to deliver high-quality services at a competitive price.
Internal Charging Models
| Model | Description | Challenge |
|---|---|---|
| Market-Based Pricing | Pricing services based on external market rates, ensuring competitiveness and realism in internal service valuation. | This ensures a level playing field in terms of pricing. |
| Cost-Plus Pricing | Pricing based on the cost of service delivery plus a margin. Ensures Internal Product Teams cover their costs while earning a predictable profit. | There is no incentive to reduce costs or improve efficiency. |
| Value-Based Pricing | Charging based on the value delivered to the Stream Teams, encouraging Internal Product Teams to focus on high-impact services. | It can be challenging to quantify the value of services, leading to disputes and misunderstandings. |
Inputs
| Artifact | Description |
|---|---|
| Customer Needs | Understanding the needs and priorities of Stream Teams to tailor services and pricing accordingly. |
| Internal Charging Tool | A tool that makes it as easy for Stream Teams to purchase Internal Product Teams service as it is to purchase from a SaaS vendor. |
Outputs
| Artifact | Description | Benefits |
|---|---|---|
| Service Pricing | A list of the prices for each service provided by Internal Product Teams. | Ensures transparency and clarity in service costs. |
Anti-patterns
- Lack of Competition: Failing to introduce competitive dynamics. This increases the overhead of internal pricing without delivering the benefits of competition.
- Misaligned Pricing: Setting prices that do not reflect the true value or cost of services, potentially leading to underutilisation or financial strain.
- Overemphasis on Revenue: Prioritising revenue generation over service quality, which can detract from the primary mission of supporting Stream Teams.s