Cost shape and forecasting
Pricing models explained
Vendor agreements are charged in a small number of recognisable ways, and the model determines how much of the cost you can forecast. Fixed and milestone pricing are knowable in advance. Per unit pricing is knowable once the quantity is fixed. Usage-based and time and materials pricing are not knowable from the agreement at all, because they depend on what happens next year.
The Vendor Squeezer team. Last reviewed 2026-08-08. General guidance on contract structures, not legal advice, and not a statement about any particular vendor's terms.
The models and what they commit
A pricing model describes the mechanism, not the amount. Two agreements at the same annual value can behave completely differently over their term if one is fixed and the other is consumption-based.
| Model | How it is charged | Forecastable from the agreement |
|---|---|---|
| Fixed | One amount per period | Yes |
| Per unit | A rate multiplied by a quantity | Only once the quantity is committed |
| Usage based | A rate multiplied by actual consumption | No, without a usage assumption |
| Tiered | Rate changes at volume thresholds | Only with a volume assumption |
| Hybrid | A fixed platform charge plus a variable component | Partly. Split the two halves |
| Time and materials | Rates for time actually spent | No, without an effort estimate |
| Milestone based | Amounts on defined deliverables | Yes, subject to timing |
The supporting fields that make a model usable
A model on its own is a label. What makes it actionable is the small set of numbers around it, and those are the fields worth capturing when a contract is recorded.
- The basis: per seat, per gigabyte, per call, per day, per device.
- The unit price, with its currency.
- The committed quantity, where one is committed.
- Any minimum commitment, which sets a floor regardless of use.
- Any cap on price increases at renewal.
Why the model belongs on the record and not in someone's head
A spend total built without pricing models treats every line as if it were fixed. That is the failure that produces a confident annual number nobody can defend, because a third of it was consumption that could move either way.
Recording the model costs one field per contract and changes what the total means. It is the difference between this is what we will spend and this is what we have committed, plus a variable component we should watch.
Questions to ask about your own agreement
- 1.Which model does this agreement use, and does it use more than one?
- 2.What is the unit, and what is the unit price with its currency?
- 3.Is any quantity committed, or is everything measured after the fact?
- 4.Is there a minimum charge regardless of consumption?
- 5.Which parts of this agreement can I forecast and which cannot?
Common questions
What if a contract uses more than one model?
That is common, and it is a reason to record the components rather than one blended figure. A platform fee plus consumption is two different kinds of commitment sharing an invoice, and only one of them is predictable.
What if the pricing model is not stated anywhere?
Record it as unknown rather than assuming fixed. Unknown is honest and it keeps the number out of a forecast that implies certainty it does not have.
Put this against your own vendors
Record the term, the notice deadline, and the exit cost against the vendor once, and the next renewal review starts from an answer instead of a search. Free while in early access.