How IT Companies Like TCS Generate Revenue: Fixed Price vs. Time and Material Projects

How IT Companies Like TCS Generate Revenue: Fixed Price vs. Time and Material Projects

In the world of Information Technology (IT), giants like Tata Consultancy Services (TCS), Infosys, and Wipro are known for their complex projects and impressive revenue streams. But have you ever wondered how these IT powerhouses actually make money from their clients? The answer lies in the type of projects they undertake: Fixed Price and Time and Material projects. In this blog post, we'll delve into the intricacies of these project types and how they contribute to the bottom line of IT companies.

The Two Faces of IT Projects

Fixed Price Projects: Assured Outcomes

Imagine a client walking into TCS's office with a clear mandate: "I want TCS to do XYZ things." In a Fixed Price project, this is a common scenario. Here's how it works:

1. Client's Request: The client specifies their requirements, and TCS evaluates the scope of work.

2. Team Composition: TCS typically assembles a 10-member team with a specific composition:
   

   • 1 Project Lead (PL) with more than 10 years of experience.

   • 2-3 mid-range experienced professionals (5-7 years of experience).

   • The rest are often freshers.

1. Billing Structure: The standard offshore rate per man-day in such projects is approximately USD 200 (Offshore rate). There may be a higher rate for onshore employees.

2. Calculating Costs: The monthly cost for this 10-member team is calculated based on the agreed-upon rate:
   

   • USD 200 x 22 workdays x 10 team members = USD 44,000 per month.

   • This adds up to USD 528,000 per year, which roughly translates to 4 crore INR.

1. Outcome-Driven: In Fixed Price projects, TCS gets paid the agreed-upon amount regardless of factors like team leaves. It's outcome-driven; TCS delivers what they promised, and the client pays accordingly.

Time and Material Projects: Pay-as-You-Go

Now, let's shift our focus to Time and Material projects. In these cases, the client hires TCS resources and pays based on the number of days worked:

1. Skillset Evaluation: The client assesses the skillset required for each of the 10 team members and agrees on billing rates.

2. Resource Expertise: Time and Material projects often demand experts to resolve complex problems. Freshers are generally not preferred in this scenario.

3. Variable Billing Rates: Unlike Fixed Price projects, there's no fixed rate card for Time and Material projects. Billing rates can vary significantly, ranging from 300 USD to 1000 USD or more for resources with 10+ years of experience.

4. Payment Structure: TCS gets paid for the actual number of days the resources have worked, according to the agreed-upon billing rates.

The Bottom Line

In the realm of IT, revenue generation hinges on the successful execution of projects. Fixed Price projects ensure a predictable income stream for IT companies, as they are paid the agreed-upon amount regardless of external factors. On the other hand, Time and Material projects provide flexibility in billing rates but require companies to deliver quality services consistently.

Both project types have their merits and challenges. While Fixed Price projects offer stability, Time and Material projects can be lucrative if executed with precision. The choice between them often depends on the client's needs and the nature of the work.

So, the next time you wonder how IT giants like TCS sustain their operations and growth, remember the diverse projects they undertake, each contributing to their impressive revenue figures.