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Pricing Models for BPO
Organizations
Commercial Models changing with times
March, 2016
Agenda
Overview
1
2
3
Available Commercial
Models
Pricing Trends in BPO deals
4
Commercial Models -
Definitions, Applicabi...
 BPO market is expected to grow with a CAGR between 5-6% till 2018
 Current BPO world has become very much competitive a...
Time and
Material Based
Commercial
Models
Outcome Based
Alternate
commercial
Models
Key Commercial Models for BPO world
1 ...
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 Gai...
4.1 Commercial Models - Full Time Equivalent (FTE) Based
– Applicability, Pros and Cons
FTE Based
This Pricing method is c...
Transaction
Based
• Price per transaction
• Transaction volume estimation
and base lining critical
• Transactional process...
Fixed Fee
• Customer pays a fixed price for
the defined scope of work
• Effort estimation critical
• Most relevant when th...
Time and
Material
Based
• Price for each productive hour
• Based on efforts expended
• This model is primarily used in
pro...
Outcome
Based
• Customer pays a fixed price for
the defined scope of work and
pays additionally only for
successful outcom...
Alternate Commercial Models
1 2 3 4 5
• Shared Service Center take-over/Buy Out: In this case company either take-over or ...
ThankYou
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Pricing models for bpo organizations

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

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Pricing models for bpo organizations

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

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