Leading Indian IT firms, including Infosys and Cognizant, are transitioning towards fixed-price and outcome-based contracts. This shift is largely influenced by the growing implementation of AI-driven automation tools, which enable fewer personnel to manage IT projects.
Traditionally, IT services operated on a time-and-material (T&M) billing model, charging clients based on the hours worked on tasks such as coding and software maintenance. However, as automation becomes more prevalent, these companies are re-evaluating their pricing strategies.
Under fixed pricing, the cost of services is agreed upon upfront, independent of the time taken or results achieved. Meanwhile, outcome-based pricing ties payments to the actual outputs delivered, rather than the inputs used.
Cognizant's Revenue Shift
Cognizant reported an increase in fixed-price revenue, rising from 43% at the end of December 2022 to 47% by the end of the last fiscal year, amounting to approximately $10 billion. Overall, Cognizant's revenue for the year reached $21.1 billion, reflecting a 7% growth, while T&M revenue fell by 4% to $9.1 billion.
Infosys Trends
Infosys, the second-largest IT services provider in India, also noted a rise in fixed-price contracts, which constituted 54% of its revenue by March 2025, translating to around $10.4 billion. The company reported a total revenue of $19.28 billion, a 3.9% increase, while T&M revenue dipped slightly to $8.87 billion.
Future of Outcome-Based Solutions
During a recent earnings call, Infosys CEO Salil Parekh emphasized the potential for more outcome-based contracts in light of AI's transformative capabilities. HCL Tech is similarly encouraging clients to adopt output-based pricing models, suggesting a broader industry trend.
C Vijayakumar, CEO of HCL Tech, acknowledged the shift towards outcome-based pricing, stating that while the revenue impact remains unclear, the company is committed to providing more outcome-focused solutions.
Analyst Insights
Industry analysts predict that IT outsourcing firms will increasingly embrace outcome-based contracts. Sushovon Nayak from Anand Rathi Institutional Equities noted that as firms save costs for clients, a portion of those savings could be shared with tech vendors.
Keith Bachman from BMO Capital Markets highlighted the necessity for IT providers to adapt their pricing models to remain competitive in a productivity-driven environment.
Profitability Perspectives
Tech Mahindra's CFO Rohit Anand pointed out that fixed-price projects present a significant opportunity for profitability, with margins on these projects being approximately 8% higher than T&M contracts. Analysts from Motilal Oswal echoed this sentiment, noting that improvements in operating margins are expected to stem from fixed-price contracts.
