Besides choosing a reliable BPO partner, first-time outsourcers must carefully consider which pricing scheme best aligns with their goals and objectives. This blog provides a quick guide on the most common outsourcing pricing models and the key factors to consider when choosing one.
Common Outsourcing Pricing Models
Outsourcers can choose from several outsourcing pricing models, each with advantages and disadvantages. We listed down some of the most common ones below:
Fixed Price Model
With a fixed price model, the outsourcer and service provider will agree on a standard rate for outsourced services. The agreed rate may be paid monthly or yearly, depending on the client’s preferred payment frequency. With this outsourcing pricing model, the standard rate already includes costs on other resources, such as tools or workspaces required for the project. Furthermore, the fixed pricing model can also be adjusted according to success targets, incentives, and salaries.
Some variations to this model include the following:
Fixed price with an economic price adjustment (FP EPA)
This variation allows the BPO provider to adjust prices based on labor, materials, and workspace costs.
Fixed price with an incentive (FPI)
As with the name, price adjustments in this variation are more incentive-based. The client’s preferred success metrics determine these adjustments.
FPI successive target (FPI ST)
Like the fixed price with an incentive variation, the FPI ST model allows clients to adjust their incentives gradually from the initial fixed price.
A fixed price model allows your business better control over your budget, enabling you to manage risks better. It also demands less project management, allowing you to focus on more critical tasks. However, its downsides include less flexibility and flexibility. With constant adjustments, it will demand more time before reaching a final agreement. This pricing model is also not ideal for projects that require complex solutions.
Time and Materials (T&M) Model
Contrary to the fixed price model, the T&M pricing model bases its cost on the time and resources used by the BPO provider. It enables more control on the BPO’s side.
The T&M model allows outsourcing providers to bid on potential clients based on their requirements. The client, however, can set limits on costs for better budget management. Because of its pricing scheme, this pricing model is ideal for businesses looking for a more long-term outsourcing campaign.
A T&M price model allows better flexibility, innovation, and control. However, adopting this model may lead to more disagreements between you and your service provider. You will need more time to get involved and manage the project. Lastly, considering several factors that can cause price adjustments, you get less control over the budget.
Incentive-Based Model
This pricing model bases its pricing scheme on the BPO vendor’s performance. Businesses often adopt this pricing model for projects with critical objectives and benchmarks. BPO partners are more inclined to deliver the highest service quality possible, ensuring higher compensation and project success.
The incentive-based model is ideal for short-term projects or value-added services like 24/7 customer support. It fosters a culture of accountability and improved working partnerships, with outsourced teams motivated to become more efficient.
On the other hand, there is an increased risk of disputes between both parties with incentive-based payments. These disagreements may bring further tension if mishandled.
Staffing Model
In this pricing model, the BPO vendor offers the client specialized personnel to address their business needs for a set period. This pricing scheme is ideal for businesses with seasonal or short-term projects that require them to leverage specialized talent to enhance their operations.
The staffing model provides more flexibility and scalability, allowing clients to hire talent temporarily depending on their business needs. It is also ideal for complex project requirements that require customized solutions. However, the staffing model can also mean higher costs and less control over outsourced staff for clients. It also has a higher risk of employee turnover.
Key Factors to Consider When Choosing An Outsourcing Pricing Model
Here are some key factors to consider to help you when choosing the right pricing model for your business:
Project Scope and Complexity
Consider the scope of work and the level of complexity your project needs. If your project has fixed requirements, consider a fixed-price model. Otherwise, a T&M model may be better for large-scale projects with complex needs.
Cost and Budget
Your financial capability also plays a key role in determining the ideal pricing model. Some outsourcing pricing models have standardized rates, while others vary depending on resource usage or skill demand.
Risk Tolerance
Different pricing models entail risks for both the BPO provider and the client. While some pricing models hold outsourcing providers fully accountable for any risk involved, first-time outsourcers must also consider the implications for flexibility.
Long-Term vs. Short-Term Goals
Looking into your business objectives can also help you narrow down the pricing model that would work best for your outsourcing strategy. Ask yourself the following questions: Do you want to prioritize ongoing collaboration influenced by constantly changing project demands? Or are you just looking for short-term partnerships with immediate results?
ClearSource: Your Partner for Adaptable, Growth-Driven Outsourcing
ClearSource is a BPO leader with an extensive client success profile. Our adaptable, customer-centric approach to outsourcing drives us to provide only the best service to our clients–regardless of their requirements and industry.
Want to find out what makes us the most ideal BPO partner for first-time outsourcers? Meet our team today!
