Latest Pricing Trend and different Pricing model in BPO world. Traditional pricing model is changing with times.

1. Pricing Models for BPO
Organizations
Commercial Models changing with times
March, 2016

2. Agenda
Overview
1
2
3
Available Commercial
Models
Pricing Trends in BPO deals
4
Commercial Models -
Definitions, Applicability,
Pros and Cons
5
Alternate Commercial
Models

3.  BPO market is expected to grow with a CAGR between 5-6% till 2018
 Current BPO world has become very much competitive and service providers are
forced to provide end to end offerings and making price point as differentiator to win
deals
 Buyers and Providers both wants to maximize their value through outsourcing
contracts
 Now a days, Enterprises consider service providers delivering not only cost arbitrage
but value based services
 ~50% consider outsourcing lever to drive cost and efficiencies
 More than 30% consider a crucial partner to bring skills, scale, domain and technology
 ~20% due to labor arbitrage
 As BPO market is maturing, clients expect service providers to put their skin in the
game and be flexible in terms of approach leading to multiple commercial models
Overview
1 2 3 4 5
Source: HFS research report

4. Time and
Material Based
Commercial
Models
Outcome Based
Alternate
commercial
Models
Key Commercial Models for BPO world
1 2 3 4 5
Fixed Fee
Transaction
Based
FTE Based

5. Pricing Trends in BPO deals
1 2 3 4 5
 Research suggest BPO deals in F&A area are still dominated by FTE models while Gain-
sharing is becoming an attractive option for Buyers
 Fixed Billing increasingly losing relevance as clients seek flexibility
 Consultants and more mature clients increasingly preferring transaction-based models.
Better pricing achieved if performance is measured in steady state
 Longer lead time to recover non recurring cost like Transition, Tools and Connectivity
instead of up-front to aid client business case
 Matured clients moving towards success based / outcome based pricing
 Revenue potential increase as move towards outcome based pricing model
66% 63% 58%
50%
59% 59%
52%
14% 20%
20%
28%
17% 22%
23%
11% 8% 13% 12% 11% 6%
9%
9% 8% 8% 10% 13% 13% 16%
2008 2009 2010 2011 2012 2013 2014
Hybrid Gain-Sharing Transaction-Based FTE-Based
%BPO-F&Acontract
Source: HFS Research

6. 4.1 Commercial Models - Full Time Equivalent (FTE) Based
– Applicability, Pros and Cons
FTE Based
This Pricing method is commonly
used in BPO organizations where
fully loaded price for FTE is
charged to customer
• Fully Loaded FTE price includes
resources cost + all kind of
management expenses +
Overheads + Margin Markup
basis skill set and location
• Complex, contextual processes
(General Accounting,
Reporting, FP&A, Tax, etc.)
where output units of
measure are not
homogeneous
• Preferred in cases where
tangible output baselines may
not be present or relevant
• Modular approach
• Offers simplicity in
application, comprehension
• Easy to implement
• Charges are largely
independent of usage
(Volumes)
Description: Applicability:
Pros: Cons:
1 2 3 4 5

7. Transaction
Based
• Price per transaction
• Transaction volume estimation
and base lining critical
• Transactional processes
(Accounts Payable, Travel &
Expense, Billing, etc.) where
output units are broadly
homogeneous
• Fluctuation in Volumes but
predictable
• Provides flexibility to pay
based on usage
• Gives the ability to focus on
throughput and drives
efficiency
• Only suitable for
homogeneous processes
• Estimation of Volumes very
critical
Description: Applicability:
Pros: Cons:
1 2 3 4 5
4.2 Commercial Models - Transaction Based
– Applicability, Pros and Cons

8. Fixed Fee
• Customer pays a fixed price for
the defined scope of work
• Effort estimation critical
• Most relevant when there is a
net delivery expected and the
volume of transactions is not
relevant
• Delivery responsibility stays
with the service provider
without changes in the cost
structure to the customer
• Charges are largely
independent of Volumes
• Effort estimation critical
Description: Applicability:
Pros: Cons:
1 2 3 4 5
4.3 Commercial Models – Fixed Fee
– Applicability, Pros and Cons

9. Time and
Material
Based
• Price for each productive hour
• Based on efforts expended
• This model is primarily used in
project-based assignments
• Provides flexibility to pay
based on efforts expended
• Applicable largely to project-
based processes
Description: Applicability:
Pros: Cons:
1 2 3 4 5
4.4 Commercial Models – Time and Material Based
– Applicability, Pros and Cons

10. Outcome
Based
• Customer pays a fixed price for
the defined scope of work and
pays additionally only for
successful outcomes being
delivered (e.g., % of
collections, fraction of DSO
reduction, savings in spends,
etc.)
• Relevant for matured
outsourcing clients focused on
business outcome instead of
transactions
• Risk with the service provider
on success-based service
• Customer pays a fixed price
for the defined scope of work
• Relevant for matured
outsourcing clients focused on
business outcome instead of
transactions
Description: Applicability:
Pros: Cons:
1 2 3 4 5
4.5 Commercial Models – Outcome Based
– Applicability, Pros and Cons

11. Alternate Commercial Models
1 2 3 4 5
• Shared Service Center take-over/Buy Out: In this case company either take-over or buy out
clients’ staff and rehire / rebadge them as part of delivery organization.
• Attractive for clients not willing to continue managing shared services anymore but do
not wish to lay off existing staff.
• In Buy out cases Client and Service provider enter into mutually beneficial solutions
where Client goes asset light and service provider scale up and enters into new market
• Managed services model: Service Provider bring their best talent to drive operational
excellence and manage day to day operations.
• Co-location: options are common when the client has shared services centers that they wish
to retain for other core operations but are keen on a rebadged solution for some of the
existing staff or wish to cut cost on the infrastructure in a site. Service provider co-locate
their staff within the client center

12. ThankYou