Written by Allie Delos Santos
Have you ever received a business process outsourcing (BPO) contract or quote and had no idea what the pricing model would be? BPO pricing models should be clear during the initial process, but that is not always true. Knowing the common pricing structures—hourly, transaction-based, and full-time equivalent (FTE)—helps you understand outsourcing contracts.
Each type of outsourcing pricing scheme provides a different mix of cost-efficiency and service quality, impacting your bottom line and the type of outsourced service you get.
Let us look at the three most common BPO pricing models to determine which is right for you.
Common BPO Pricing Models
Outsourcing is a great option to enhance competitiveness, save on labor costs by 70%, or improve customer service. But you need to use the right pricing structure to maximize its benefits.
This section defines the three most common BPO pricing models: hourly, transaction-based, and FTE-based, and determines where each model most applies.
Hourly pricing is common among call centers, where providers receive a flat rate regardless of how many tickets they handle. This approach is straightforward and similar to many in-house pricing schemes, making it easy to budget and set up. With this method, you pay according to the total number of third-party agents assigned to your account and their work hours.
Suppose you have 30 agents, each working 40 hours per week to manage your customer service. You pay the service provider a flat fee for the 1,200 hours the agents work per week.
The call center provider is in charge of effectively and accurately deploying agents to manage call volumes. Hence, working with a provider with a reputation for effective scheduling is crucial for this BPO pricing model.
When is hourly pricing best used?
An hourly-based pricing model is ideal for businesses with ticket volumes large enough to justify having a team of full-time agents without much downtime. Clients looking to motivate agents to personalize each customer interaction to enhance the experience and first call resolution (FCR) rate might consider this BPO pricing model.
This BPO pricing model charges per transaction or unit, such as output or data entries by third-party workers. Unlike the FTE-based approach, where effort and input determine the final price, a transaction model uses output as the unit of measurement. In this approach, the client must define what the BPO unit is.
Transaction-based pricing is ideal for business processes with clear definitions, measured in discrete units, and precise service-level requirements. The service-level requirement must remain stable despite the change in the number of transactions or users.
When is transaction-based pricing best used?
This BPO pricing model is best for individual transactions, such as data entry, and other cloud services with a definite set of steps, such as conducting research. Clients prefer this approach when transaction counts are low and subject to high fluctuations.
Of the three BPO pricing models, the FTE-based model is the most mature. With this approach, the time and resources the service provider has invested in accomplishing the project are the basis of the final price.
Depending on the client’s needs, the service provider considers factors such as staff expertise, project complexity, the number of employees, and the vendor’s location.
When is FTE-based pricing best used?
This model applies to a software development project and other complex, contextual processes. Others prefer this approach for cases where tangible output baselines are not relevant or present. This BPO pricing model is useful when transaction levels are high but are not subject to constant fluctuations.
Factors To Consider When Choosing the Right BPO Pricing Model
According to the Deloitte Global Outsourcing Survey 2022, 57% of businesses use traditional outsourcing strategies to reduce overall costs. The wrong BPO pricing model prevents companies from reaping the full benefits of outsourcing. Seeking help from a business solution consultant helps you find the best approach.
So which of the three most common models applies to you? Consider the factors below and see how closely they match your current goals and needs.
- High call volumes with emphasis on customer experience: Choose an hourly approach because it allows for greater flexibility and security to deliver excellent customer experience, no matter how long it takes to resolve the case.
- Prioritized efficiency and speed: Pick the per-transaction option to pay only for what you need and incentivize agents to prioritize speed and efficiency.
- One-off projects and low call volumes: The transaction-based model is best for low or inconsistent volumes and short-term projects since you outsource and pay only for the amount of work needed.
- More focus on service over speed: Go for the FTE-based approach to motivate agents to focus on service quality over speed, as opposed to the transaction model.
Importance of Choosing the Right BPO Pricing Model
The repercussions of choosing the wrong BPO pricing model are easy to spot. Consider the following scenarios:
- Due to the strong financial incentive, agents might create accounts for additional services without the client’s knowledge or approval.
- Putting high emphasis on a single metric leads to a similar outcome.
- Without checks and balances, incentive programs might be abused.
Choosing the right pricing structure is not a silver bullet, but it helps you align your objectives with the BPO service rendered. Without alignment between the two, clients and service quality suffers, behavior and processes become counterproductive, and customers are adversely affected. Efficiency also takes a hit in the long term.
More importantly, businesses have difficulty fulfilling their brand promise, leading to a severe loss of integrity, poor customer loyalty, and reduced revenue. Getting the BPO pricing model right is not only for the client. It is more about establishing a structure that delivers the intended customer satisfaction with the highest efficiency and the least waste.
The Bottom Line
Choosing the right pricing approach for your outsourced service is no easy feat. You risk choosing the wrong model if you are unclear about your project’s needs. The wrong approach often leads to delays and unexplained expenses.
Make strategically considered and well-thought-out decisions to maximize the benefits of outsourcing. When choosing the right BPO pricing model, take your time to assess the different options.
Looking for a reliable outsourcing solution with a pricing scheme that works for you? Drop us a line, and let’s connect!
Enjoyed what you just read? Share it with your network.
About The Author
Allie Delos Santos is an experienced content writer who graduated cum laude with a degree in mass communications. She specializes in writing blog posts and feature articles. Her passion is making drab blog articles sparkle.
Allie is an avid reader—with a strong interest in magical realism and contemporary fiction. When she is not working, she enjoys yoga and cooking.