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The Exciting World of Outcome-Based Pricing

If you’re in the know with the outsourcing industry, you may have heard some rumors about the new cool kid in town. Outcome-based pricing models! Though it may still be in the underground, there’s a good chance that this contract model could come into the mainstream very soon. The following is a summarized version of an article by Duncan Tucker that explains outcome-based pricing and what its future may hold.

Is Outcome-Based Pricing in BPO Here to Stay?

There have been a growing amount of contact center contracts with outcome-based pricing models. This means that the service provider is rewarded for meeting specific objectives, which would ideally lead to better results and allow sellers to increase earnings. However, the growth of outcome-based pricing models may be cut short by the fact that sellers have to accept a majority of the risks.

The point of outcome-based model is to give incentives for the call centers to achieve goals while reducing risk by eliminating buyer costs if the goals aren’t met. According to Katrina Menzigian, Vice President of Research Relations at Everest Group, the growth of outcome-based pricing tells us that the contracts have changed and that the perception of the call centers is closer to the business outlook of the organizations they support, rather than just being a cost saver.

Bob Dechant, Chief Sales and Marketing Officer at Qualfon, says that this trend has emerged because the price-per-hour can’t go any lower, so organizations and outsourcers have to be creative in order to lower contract prices. Essentially, outcome-based pricing is growing in popularity because the organizations can pay less if the outsourcers underperform, while guaranteeing that they only have to pay top dollar if organizations goals are met.

Metrics

The metrics that organizations want from outsourcing sales are:

  • Close rates
  • Average order spend, and
  • Revenue-generating units

But if the organization wants to focus their outsourcing on customer care, the metrics aren’t as easy to define. Some key metrics to for customer care include:

  • Quality
  • Customer experience, and
  • Net promoter

According to Dechant, service providers and the paying organizations decide whether the outcomes are to be measured internally or externally, through surveys for example. Sales metrics are much easier to measure than customer service metrics, so sales incentives take a higher percentage of a contract than customer care incentives.

Menzigian adds that other outcomes typically linked to financial incentives in outcome-based contracts include:

  • Churn
  • Growth in a particular product line
  • Client satisfaction levels, and
  • Collection achievement

Many of these metrics are measured in ranges. Most contracts involve hybrid payment structures rather than 100% outcome-based pricing, Menzigian said, explaining that “part of it needs to be fixed to cover the expenses that the service providers are incurring and then part of it is incremental.” 

Who’s Buying?

According to Everest research, 34% of all contact center contracts signed in the last two to three years used some kind of hybrid pricing model. Of these, 69% included some kind of outcome-based component, Menzigian said. This means almost one in four of all contact center contracts now contain some degree of outcome-based pricing.

The outcome-based contracts are most popular in the United States because they are well experienced with outsourcing and are embracing this model as industry evolution according to Dechant. The model is better suited for veteran outsourcers who are accustomed to the industry, as opposed to those who are new to the industry and have less experience with the metrics.

Risk Assessment

The biggest risk with outcome-based contracts is that if the outsourcer isn’t diligent, and they aren’t performing well enough to meet their goals, then they’ll lose money or break even at most. The outsourcer must know their objectives clearly and make sure they are capable of achieving them. The best way for outcome-based contracts to work is if both sides are mutually benefitting from the contract. If all of the risk is put on the provider and not the client, then the model will not work long term.

The Future

Menzigian believes outcome-based pricing will continue to grow and become more common because organizations want closer relationships with their outsourcing providers and to gather better analytics.

Dechant believes that the model depends on how strong the relationship is between provider and client. If providers can do well financially without clients taking advantage of them, outcome-based contracts will continue to be utilized.

 

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Outsource Consultants are call center experts with over 25 years of outsourcing industry experience that have spent thousands of hours vetting and analyzing the strengths and specializations of the industry-leading outsource call center vendors. If you’re considering call center outsourcing, simply call 888-766-4482 or request a free call center cost proposal today and we’ll help you find the solution that best fits your exact requirements.