3 reasons buyers are switching to subscription-based VMS pricing models

Shift away from percent-of-spend pricing

While many contingent workforce programs still pay for VMS services under a percent-of-spend fee model that originated nearly 20 years ago, more programs each year are shifting toward the more strategic subscription pricing model employed by other enterprise software solutions.

Predictable costs for better budgeting

From a buyer’s perspective, a primary benefit of the prevailing Software-as-a-Service model is to move the expense of technology purchase from capital to operational. As Gartner has noted, “A side effect was to make it much easier for nontechnical people to purchase technology.”¹

Gartner further notes that “It is only fairly recently that additional technology and services have been introduced to help organizations identify and manage subscription purchases and attempt to remove some of the ‘wild west’ buying that often occurs.” One effect has been to shift from highly variable fee-based agreements, such as percent-of-spend VMS contracts, to a more predictable annual subscription approach.

Aligning services with business needs

The growth and increased diversity of companies’ contingent workforce is another factor driving organizations to seek more flexibility than conventional percent-of-spend fee structures allow. As McKinsey & Company stated in their 2017 study of purchasing models for technology solutions, “Flexibility and the ability to manage costs are driving customers to subscription models.”²

Noting that the preference for on-premises software subscriptions increased to 82% in 2017 from 63% in 2013, McKinsey commented that flexible subscription pricing allows companies “to negotiate a subscription contract aligned with the true needs of the business.” In 2023, an International Data Corporation (IDC) study noted that the trend for software companies to adopt the subscription model continues to grow and is forecast to represent 92.2% of total software revenue by 2027.³

A strategy for growth

Building a world-class software solution infrastructure requires a huge upfront investment to meet the business needs of blue-chip multinational clients. It also requires continuous innovation to meet ever-growing security and product functionality requirements.

Nowhere is this more apparent than in the world of contingent workforce management where VMS solutions originally designed to manage temporary agency spend have expanded to encompass the sourcing and management of all non employee labor categories.

Industry consultants at Brightfield Strategies note that “VMS platforms are [now] being bought at a more strategic, enterprise level.”⁴ Citing the need for better independent contractor (IC) compliance management and statement of work (SOW)-based contract management functionality, Brightfield notes that “percent-of-spend model is increasingly challenging to implement” and a barrier to geographical and labor category expansion. “As the funding model changes to more of a corporate platform-type system, the additional labor category and global adoption should increase exponentially,” Brightfield concludes.

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