Price benchmarking is the practice of comparing what you pay for a technology service with what comparable buyers pay for comparable services today. In IT and telecom it is used for circuits, internet access, voice, mobility, cloud, managed services and software. A useful benchmark compares like with like: the same service, similar locations and volumes, similar contract length and similar service levels. The result shows whether a price is in line with the market and how much room there may be to negotiate.
At a glance
- Benchmarking compares your current or quoted prices with market prices for comparable services and terms.
- Data comes from recent quotes and contracts, advisors’ and brokers’ client data, list prices and competitive bids.
- The comparison only holds if service, location, volume, term and service levels are similar.
- Some outsourcing and managed service contracts include a benchmarking clause; outcomes are usually negotiated.
- It is commonly run before renewals, as part of telecom expense management (TEM).
What problem it solves
Technology prices are rarely published in a form buyers can compare. Providers quote case by case, discounts vary by customer, and older contracts often keep prices that were competitive when signed but have since been overtaken by the market. Without a reference point, buyers either accept renewal quotes as offered or run a full bid process to find out.
Benchmarking gives the buyer that reference point. It shows which services are priced above market, by roughly how much, and where the gap is large enough to act on. That supports a renegotiation, helps finance set budgets, and tells the buyer when a competitive bid is likely to be worth the effort.
How it works
Build the baseline. List current services with their prices, quantities, locations, contract terms and service levels, usually from contracts, invoices and an inventory. Each line’s monthly recurring charge (MRC), one-time charges and usage charges should be separated.
Normalize. Services are grouped so that like is compared with like: bandwidth and access type, on-net or off-net, contract length, service level, managed or unmanaged, and region. Taxes and surcharges are usually excluded or treated consistently.
Compare. Prices are compared with recent quotes, the benchmark provider’s data, the provider’s own rate card and, where useful, competitive bids. Results are often shown as a range rather than a single “right” price.
Act. Findings feed a renegotiation, a request for proposal, a change of provider or a decision to leave pricing as it is. Some buyers use benchmark data to set targets for a request for proposal (RFP).
Contractual benchmarking. Price benchmarking is one part of broader contract benchmarking, which also compares terms such as service levels, commitments and termination rights with market norms. Some long-term outsourcing and managed service contracts let the buyer commission an independent benchmark at set intervals. What happens next depends on the clause: it may require the parties to negotiate, allow a price adjustment within limits, or give the buyer other remedies. Read the method, comparison group and any caps closely. This is general information, not legal advice.
Benchmarking is often one part of a broader telecom expense management program that also checks invoices against contracts.
When it matters for buyers
- Before a renewal. A benchmark shows whether the renewal quote is competitive before you commit to another term.
- Mid-term on a long contract. Prices may have fallen enough to justify renegotiating, even before renewal.
- When a new CFO or board reviews spend. A benchmark gives an outside reference rather than the provider’s word.
- When combining companies. Two sets of contracts for the same services invite a comparison.
- When considering price protection or a price escalator clause. Knowing the market helps judge whether locked or rising prices are reasonable.
Questions to ask vendors
For benchmark providers and advisors:
- Where does your pricing data come from, how recent is it, and how many comparable data points support each result?
- How do you normalize for location, volume, term and service level?
- How are you paid, and could that affect your findings? (For example, a technology advisor may be paid by the providers it recommends.)
For current providers:
- Will you review our pricing against current market rates before renewal?
- Does our contract include a benchmarking clause, and how does it work?
- Can you match current pricing on our existing services without extending the term?
How it differs from a telecom audit
A telecom audit checks whether you are billed correctly under your contracts and whether you still use what you pay for. Price benchmarking asks a different question: whether the contracted prices themselves are competitive. A bill can be perfectly accurate and still be above market, so many buyers do both.