BPOs move from fixed fee pricing to Outcome based pricing

There are lots of advancements happening in the field of technology and also in the way services are provided by BPO firms. The customers of BPO companies are nowadays not only looking at the cost aspect but are looking at how much value their BPO partners can add to their business. BPO firms especially in India have started offering knowledge based services slowly moving away from voice based and transaction based services. These firms have also slowly started changing their pricing models and they are moving away from fixed fee outsourcing arrangements to outcome based pricing.

According to Mr. Mohammed Haque who works with Genpact and is the Head and Vice President of Enterprise Solutions Service Practice, still 90-95% of the outsourcing functions are fixed fee based and only 5% follow outcome based pricing. It is strongly predicted that this scenario will change and the share of outcome based outsourcing arrangements will be 40-50% in next 5 years. More and more BPO firms like HCL Technologies, ACS, BancTec have now started offering outcome based pricing.

Outcome based pricing models are adopted when the focus of business organisation is not merely to cut cost but to have an impact which is measurable looking at the end business result. This pricing model is mostly used when the customer and the service provider work towards a common goal and they have a common interest. This type of pricing model is apt when:

  1. There is under utilisation of people.
  2. Cost of change management is high
  3. The outcome of business is process oriented rather than business oriented
  4. The outcome is based on meeting deliveries or deadlines
  5. The risk associated with the project is partially in control

The critical factors which need to be considered by BPO firms before executing this pricing arrangement are:

  1. Business model of the customer should be clearly understood.
  2. An in depth study should be done about the industry on the operational aspects of the company.
  3. The risk involved in the business should be well understood and should be factored.
  4. All the variables, reports, data and the way pricing is going to be done should come as part of the contract.
  5. The customer and the service provider should work simultaneously towards the common goal.

A strong relationship between the service provider and the customer is the pre requisite for the successful implementation of this pricing model. The service provider should clearly understand the risk involved in undertaking such a process and should also estimate the cost involved in providing such a service.

Outcome based pricing model is nowadays not only finding application in business processes but also in technical processes. Business processes involve support for live tech applications and technical processes involve maintaining an uptime of 99.7%. The model is considered to be apt for use in BPO’s, as in this industry especially for voice based services, the payment is based on number of calls which have been successfully converted.

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  1. Whilst this is an interesting trend in India, too early to predict any outcome in the near future, as the market maturity to understand this model is yet to evolve. Barring few stakeholders in the organizations, others are yet to get a handle on the basic of the operations, hence in my view, this trend to take effect is a little far away from the mass-market adoption.

    However I have seen this trend with some Telcos, where pay-by-performance models have evolved within the contact-centre operations, with detailed KPI drawn-out against which payments are made.

    Interesting trend & will definitely a great push to the much-needed customer-service models in India..

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