BPO Cost Models are the pricing element of the contract you engage a Business Process Outsourcer (BPO) with. How do you make the most of your BPO?
This article is for managers to review their contractual agreements with their outsourcers or how to go about outsourcing to a BPO
For experienced outsourcers please skip down to the wrap up and sense check your outsourcing choices.
- Primary Considerations
- BPO Cost Models
- The Fine Print
- Wrap Up
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Up front honesty
I’ve been in in the business process outsourcing world for over 20 years of my career.
Whether working in…, being an … supplying … or consulting with outsource companies the experiences I’ve been exposed to have helped to shape my opinions.
These are opinions from someone who’s been there and done that but I don’t profess to have done it all. I welcome your feedback and insights.
I’m neither completely biased for or biased against outsourcing as essentially the management choice boils down to doing what is strategically best for the business at the time of the decision.
In the form of questions let’s look at what goes into setting you up for outsourcing.
The bang for your buck
The first consideration is the scope of your outsourcing. What exactly are you outsourcing? Technically anything in your business can be outsourced?
Straight out of the blocks outsourcing will cost you more money than doing it yourself. So why on earth would you ever outsource?
The three primary reasons are time, risk and quality.
- Firstly, time is the primary consideration. When you retain an outsourcer it can be a factor of months faster than putting everything you need to do in place.
- Risk is a factor because if there’s someone else experienced and capable of doing a process they’re going to be able to spot and fix holes a lot faster than you learning the ropes.
- Finally, quality is a huge part of the outsourcing process as the scope and operation is defined and focused.
When do you need this business process up and running by? Putting a time window on this decision focuses everyone’s mind and strategy.
There are five areas where time is spent on any process.
- Delivery of the work
- Management and reporting on the process
- Hiring and management of the staff
- Quality checking the work
- Reviewing the process
If you do the work in-house you have 1, 2, 3, 4 and 5 to contend with. If you outsource you still have 4 and 5 to consider. I have seen 4 outsourced itself as a process, then there are two 5s to consider.
So with your team where have you the time to spend. Outsourcing gives you all the time that 1, 2 and 3 take up.
You’re going to pay someone to take those areas and their potential headaches from you.
What risk do I expose my business to by outsourcing?
As is sensible to do in any business looking at the risks of keeping thing in-house or outsourcing is fairly extensive.
Essentially it boils down to loss of visibility of what is being done on behalf of your business vs. the risk of managing staff and their delivery.
So if you can mitigate the first part, then in terms of risk outsourcing is a far better way to go.
Where do we need to improve?
Ongoing management and refinement is time consuming especially if you’re learning the ropes.
Your quality will start low if you don’t have prior experience in a field.
As staff transition out of your business they take with them experience and ability to deliver and your quality levels can be affected.
For a lot of businesses areas of the processes are undocumented. “How do I do this?” is in people’s heads not on paper.
Where is the paperwork that describes the processes and procedures and is the basis of training?
Whilst this continues there is obvious risk and huge time overheads yet the time to outsource would mean writing everything down which is equally difficult.
If you don’t have a quality control system already in place before you outsource then you’re going to have to develop one as you outsource.
BPO Cost Models
In every outsourcing model there is a cost factor for administrative overhead.
How the management and back office teams are charged to you so the outsourcer covers their costs.
For sales processes there are often commission charges which vary greatly.
Minimum wage in the country that operates the outsourcing operation will feature greatly in the pricing.
BPO Cost Models – Cost per Seat
This is the closest model to you hiring the staff yourself consequently every person who hired is charged directly back to you.
You are paying for someone else to just handle the primary staffing headaches of ensuring bodies show up for work and managing holidays.
Where your process is not refined this model will work but has the greatest opportunity for waste in it.
BPO Cost Models – Cost per Call / Contact
This is where you only pay for the amount of time that staff are on the phone or dealing with a reply to a customer and consequently removes a lot of waste seen in CpS models.
The primary draw back occurs as the encouragement is to get callers / people who write in to contact as many times as possible.
Quality can check this process but it can be difficult to manage.
BPO Cost Models – Cost per Case
Used as a focus for businesses who want to see First Contact Resolution (FCR). A customer gets a solution in one go. If the contact extends over multiple contacts there is only one charge.
The pro of this is that you only pay per case. The challenge is put mainly on the Outsourcer to manage follow on contacts.
The con of this approach is that for even short contacts / quick contacts the Outsourcer will have a high rate.
As an example, “please read this web page on the website” type case is the same charge as a “complex case requiring the input of multiple departments” type case.
BPO Cost Models – Cost Per Time (CpWM and CpWH)
The cost per time model is where you only pay when staff are working. Cost per Working Hour, is very close in approach to Cost per Seat.
The difference being that if the shifts are longer, Cost per Seat might be charge for two people, where Cost per Working Hour is only for the hours.
Cost per Working Minute is literally a focus on only paying for actual work done and if the lines are idle or queues are quiet then you won’t pay for staff sitting there.
Whilst not a cost model this approach is used by innovative contact centres.
The outsourcer has agents who can answer calls for 5 different clients.
The charging model is a time or contact based one.
However as the outsourcer is time sharing the agent the adminstrative cost is lower.
Companies who offer this process are more competitive when it comes to the cost of the monthly admin overhead costs.
Which cost model works best?
Working the best of the BPO Cost Models for you have two sides, simple and difficult at the same time.
- Simple. You get your contact patterns and have an idea of the volumes and duration of your contacts.
- Difficult. You work out the cost of what this would be in terms of time and money to do for yourself factoring in the human challenges (training, sickness and turn over).
What you need are metrics. Pure numbers and over a period of time. Is Christmas more busy than summer? Metrics will change annually but give you a base line to make an informed decision.
What are your metrics in terms of contact patterns and average handling times (AHT)?
With metrics you can make an informed decision before you even approach an outsourcer.
If you’ve never done this process before and you have no metrics to go on, guess.
As a mitigation of some form, chat to an experienced person in your field. Try LinkedIn for someone in a similar field and ask your questions.
If that’s not an option give this process to an outsourcer and then let them gather your metrics for you. After a period of time you’re going to review and do the exercise using the numbers they have generated for you. A CpWM or CpWH are the safest options for this route.
If you have a lot of long cases go Cost per Case and work with the outsourcer to reduce the amount of short cases as you learn.
You’re looking for one of the BPO Cost Models that suits your process as it is at the moment. It will change with time.
The Fine Print
BPO Cost Models and conditions vary from outsourcer to outsourcer consequently some quite simply don’t offer some pricing models.
It’s a case of “buyer beware”. Do a bit more shopping. The power is in your hands as you have the money to spend.
Find an outsourcer that will give you a deal that works for you.
Bigger outsourcers tend to need bigger contracts and bigger overheads. There are many smaller boutique outsourcers who would be happy to work with you to build their business.
Who are we going to use?
Shop around and get multiple quotes. This is very like choosing an electric or gas supplier for your house but on a bigger scale.
If you want an idea on some of the best outsourcers you can ask your national Contact Centre associations
- Ireland: CCMA Ireland – Customer Contact Management Association https://www.ccma.ie/
- UK: CCA https://www.cca-global.com/
Length of contract and Extras
The other vital element of a contract is the duration of the contract.
Like a mobile phone contract, if the service doesn’t work out for you and you want to leave what is it going to cost?
Contact centres need time to hire, retain and train staff. They need to make initial investments in getting the project going pay them over the life time of the contract.
When checking your contract also check how much time is noted for training, support, reviews, meetings and other “support” services which can add up.
Even things such as post, travelling and cost of meetings should be watched.
Have you checked the fine print of the contract?
The system you run your process on can vastly change not only the BPO Cost Models selected but also how you manage your processes.
In order to get an accurate picture of what’s happening to your process you need to be able to see into your analytics data.
You can ask your provider for the data but if you can’t see it in real-time or are dependent on end of the month reports, something is very very very wrong with your arrangement.
Modern Internet based systems mean that the outsourcer can log into tools no matter where in the world those tools are housed.
Whose system are we going to use?
Instead of getting your outsourcer to provide you a system, you provide one to them which gives you full control and visibility of performance.
Many outsourcers will baulk at the notion of allowing you full visibility of the operation but again, you’re the one with the money and making the decision.
A proper system will even allow an outsourcer do front line support whilst you retain highly skilled support as a second or third level of support in-house.
Similar to the systems section above you need visibility of the quality of the output of your processes.
The ability to select random call recordings and review them. As a result at any time review a case from start to finish and see how it was handled.
Try integrate a CES or NPS scoring system into the process to allow the customers grade their experiences consequently a proper system will facilitate this.
Asking your outsourcer to also quality check their own work is like asking the fox to guard the hen house. It’s possible but in business terms not sensible.
Some businesses provided dedicated quality review business process outsourcing.
Have we a plan for how we are going to quality check our process?
What you lose
The first thing you’ll lose when you outsource is hands on experience.
Doing anything for yourself teaches you about it but time, experience, risk and quality may not be on your side.
There are many people in business who use their business challenges to refine their business and offering. An outsourcer adds a layer of removal which can hide some valuable teachings.
Having insight into your business and choosing a business that wants to be a partner not just a supplier is key.
Does this outsourcer want to be a partner or a supplier?
BPO Cost Models are something that can help an outsourcer grow or hold a business back.
I’ve had the privilege of learning from the man who had the first business process outsourcing business which offered bureau services in Ireland. Nick Wheeler established Telephone Marketing Services (TMS) in Ireland in the 1989 and sold that business to SITEL, a multi-national in 1997.
Since setting up bxp software the All n One team have supplied to BPO and various large companies alike, having been the fox and the hen in numerous scenarios.
As the expression goes, “the divil is in the detail” so making sure you negotiate the best rates along with having a system that gives you full visibility of your processes is how you will maximise your Return on Investment through outsourcing.
So your question list is:
- What exactly are you outsourcing?
- When do you need this business process up and running by?
- What risk do I expose my business to by outsourcing?
- Where do we need to improve?
- Where is the paperwork that describes the processes and procedures and is the basis of training?
- What are your metrics in terms of contact patterns and average handling times (AHT)?
- Who are we going to use?
- Have you checked the fine print of the contract?
- Whose system are we going to use?
- Have we a plan for how we are going to quality check our process?
- Does this outsourcer want to be a partner or a supplier?