IT Firms’ Time & Material Revenue Drops to 35% Over Two Decades as Clients Push for Accountability, Innovation

Mumbai: The revenue share of time and material (T&M) contracts in the Indian IT sector has halved over the past 20 years, falling to 35% in 2024 from 70% in the early 2000s. The shift underscores a growing demand among global clients for outcome-based models that emphasize accountability and innovation.

Time and material contracts, which traditionally bill clients based on hours worked and materials used, have long been a staple of IT services. However, as businesses seek greater value and alignment with strategic goals, they are increasingly opting for fixed-price and outcome-driven contracts, which now constitute a majority of IT services revenue.

Client Expectations Drive the Change
The push toward accountability is driven by clients' focus on achieving tangible results and innovation in service delivery. Enterprises are prioritizing key performance indicators (KPIs) such as faster product rollouts, cost efficiencies, and enhanced customer experiences.

“Outcome-based models create a sense of shared responsibility between clients and IT providers, fostering a partnership approach rather than a transactional one,” said an industry analyst.

Emphasis on Emerging Technologies
The evolution is also tied to the proliferation of emerging technologies such as artificial intelligence, cloud computing, and data analytics. These innovations demand specialized skills and a more agile delivery approach, which is better suited to fixed-price or milestone-based contracts.

Implications for IT Firms
For Indian IT firms, the decline in T&M revenue signals a shift in business dynamics. While outcome-driven contracts offer higher margins and closer client collaboration, they also bring risks, including stringent delivery timelines and potential penalties for non-performance.

“IT providers must adapt by investing in automation, upskilling talent, and leveraging data-driven methodologies to ensure success under these models,” said an executive from a leading IT services firm.

Looking Ahead
Industry experts believe the trend will continue, with T&M contracts primarily confined to niche or short-term projects. As clients prioritize innovation and accountability, IT service providers are expected to deepen their focus on delivering measurable business outcomes.

This transformation reflects a broader trend of digital transformation, where success is measured not just in execution but in tangible business impact.