The IT industry is not just about coding and development; it also involves explicit business models determining how companies generate revenue.
Each approach has nuances and rules, from outsourcing to consulting, outstaffing, and product-based models. While many perceive IT companies as purely development-focused, the reality is much broader. Companies can scale, attract clients, and measure performance metrics differently depending on the chosen business model.
Let’s explore IT business models and key metrics that drive success. In our case, we clearly understand the difference between outsourcing and a product-based approach. Today, we’ll focus on how these models differ and examine the business strategies used in product-based IT.
We develop our own products, which evolve into ecosystems with real users and stable revenue over time. This is the foundation of our strategy: choosing a long-term perspective where every step
Outsourcing: Rapid Scaling Through Client Projects
Outsourcing companies operate on a “we make, you pay” model. They develop software for other businesses, generating revenue through hourly or fixed-rate payments. The main advantage of this approach is rapid growth without the need for significant investment in a proprietary product. However, there are downsides: high dependency on clients and intense market competition.
Key Characteristics of This Model:
Revenue depends on the number of clients and service pricing.
The main asset is a development team working on external projects.
Minimal investment in product marketing, as clients typically come through B2B connections.
Key Metrics for Evaluating an Outsourcing Business:
Revenue per Employee (RPE) – measures how much revenue each employee generates.
Utilization Rate – the percentage of work hours spent on billable client projects.
Client Retention Rate – indicates how long a company retains its clients.
Product-Based IT: A Long-Term Game with Diverse Business Models
Product-based companies develop their own digital solutions, ranging from mobile applications to business process automation platforms. Unlike outsourcing, they don’t sell developer hours; instead, they monetize the product itself. This is a more complex but ultimately more profitable approach in the long run.
Key Business Models in Product-Based IT
Subscription Model – Stable Revenue from Users
This is our model. Users pay regularly for service access (monthly or annually). It is widely used in both B2B and B2C segments.
Examples: Spotify, Netflix, Wisey. |
🔥 Key Advantage: Predictable revenue. |
Pros: Stable, forecastable income, scalability potential. |
Challenges: User acquisition, reducing subscriber churn. |
Key Metrics: Customer Acquisition Cost (CAC) – cost of acquiring a paying user. |
Ad-Based Model – Monetization via Advertising, Premium Features, or User Data Sales
A classic model used by Facebook, Instagram, and TikTok. Users get free access.
Pros: Scalable, high user engagement. |
Challenges: Competition for user attention, continuous audience growth requirements. |
Key Metrics: |
Marketplace Model – Platforms Connecting Buyers and Sellers, Earning On Commissions or Paid Listings
Examples: Amazon, OLX, Etsy, Uber, Airbnb. |
Pros: A self-sustaining ecosystem. |
Challenges: Balancing supply and demand, competition with other platforms. |
Key Metrics: |
Business models in IT can be even more diverse. Beyond revenue generation, they can also be categorized based on customer interaction and operational structure.
1. Outstaffing Companies
Outstaffing is an efficient model for engaging external specialists who work on projects but remain legally employed by the provider. This approach allows companies to flexibly expand their teams without excessive bureaucratic hurdles or full-time hiring.
Some drawbacks of this system:
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Коли обирати: Якщо вам потрібно швидко розширити команду для конкретних задач і при цьому не готові вкладати великі ресурси у внутрішню команду. |
2. Consulting Companies
Consulting firms provide expert services that include analyzing the client’s current situation, creating strategic solutions, implementing technological changes, and supporting projects. They operate on either a project-based consulting model or a subscription for long-term advisory support.
Advantages
| Disadvantages
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When to choose: If your company needs external expertise for developing strategies or implementing new technologies. | |
IT Departments in Non-Tech Companies
These internal units provide essential technological support to companies whose primary business is not technology-driven. While they do not generate external revenue, they are crucial in ensuring the company’s stable IT operations.
Advantages
| Disadvantages
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When to choose: If you run a large company that requires continuous IT system control and support, while avoiding reliance on external providers. | |
Conclusion
Each business model in IT has its advantages and risks. Outsourcing allows quick scaling but comes with high client dependency and constant competition. Product-based IT is more complex but offers long-term benefits, enabling you to create market-changing products rather than just executing others' tasks.
There are also many alternative models. Subscription-based services ensure predictable revenue streams, marketplaces create self-regulating ecosystems, and transactional services help to monetize each operation. Each of these models has its strengths and weaknesses. The key is to balance user value and scalability potential.
In our case, the subscription model allows us to focus on building a superior product and working towards long-term goals while ensuring a stable income.
Outstaffing, consulting, and internal IT departments also have their characteristics. Each requires specific conditions for effective operation, but ultimately, it comes down to one thing—a clear understanding of who you are: a rapid scaler or a long-term player.
If you know your direction and the approach that suits you best, your path to success will be clear. The most important thing is to create a product that solves real user problems. This is the ultimate key to success in IT.
