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BPO Pricing Models

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Whether it is the cost and time savings, improved competitiveness or enhanced customer service, you realize the benefits of outsourcing will add value to your organization. Once this realization is reached, the next step is identifying the pricing model that works best for the processes you’ll be outsourcing. In this post, we’ll outline three pricing models that are commonly used by outsourcing service providers, included the FTE, Transaction-based and Outcome-based models, and look at where each model is most applicable.

FTE Model

Of the three pricing models, the full-time equivalent (FTE) employee model is the most mature and one that we have employed at String since our inception. With this model, pricing is based on the time and resources we, as the service provider, have invested to complete the process we were retained to perform. Depending on the needs of the client, when utilizing this model we will take into consideration factors such as the expertise of the staff needed to perform the process, the complexity of the process and whether the work is preformed onshore or offshore.

The FTE model is ideally suited for scenarios where transaction levels are high and are not subject to significant fluctuations in volume or when the processes performed cannot be easily parsed into individual units/transactions. For example, clients that retain String to process thousands of searches per month would find the FTE model more cost effective.

Transaction-based Model

The Transaction-based model determines pricing by unit or transaction, such as the number of commitments String produces or the number of files we enter. Unlike the FTE model where input and effort is the measurement for billing, the Transaction-based model uses output as the unit of measure. Clients pay a set fee for each unit or transaction we complete. Economies of scale come into play with Transaction-based pricing as our resources and expertise are shared across our entire client base generating costs savings which are passed back to the client.

This model is best suited when the outsourced process is, or can be parsed, into individual transactions, such as data entry, or into a defined set of steps, such as conducting a search and preparing a commitment. It is often the preferred model when the client’s transaction counts are low to moderate and may be subject to a high degree of fluctuation.

Outcome-based model

Outcome-based pricing is a relatively new, non-conventional model that ties the service provider’s fees to defined metrics and milestones specific to the client’s business. These metrics may relate to improvements in customer satisfaction, growth in revenue or realized cost savings. Of the three models, it is by far the most difficult to implement and manage as the metrics used must be reliable and quantifiable over the term of the partnership, whether that is 10 months or 10 years.

This model should only be used if the service provider and the client have an established, long-term partnership and the service provider has end-to-end control of the process that is being outsourced.

If you are considering outsourcing and would like to discuss the intricacies and applicability of the above pricing models, do let us know by commenting on this post or contacting me directly.

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