Selecting the proper pricing model can be confusing when engaging with a software engineering partner for an outsourced project. You have to balance the risk and reward for each party while assuring that the BPO company provides solutions, not activities warranting that you’re getting the most value for your investment. Considering your viewpoint, organizations have several pricing models to choose from when structuring their next outsourcing agreement.
What is an Outsourcing Model?
Outsourcing can be defined as a strategy of delegating work functions to another individual or firm rather than performing them in-house. It’s usually done by companies who want to save money, have the help of a trained and experienced team, and save time and focus on the most important areas of their growth.
What are the Types of Outsourcing Models?
Staying competitive in the corporate landscape requires being unquestionably decisive and strategic. In many ways, outsourcing equips your company better for getting on a higher gear. But how do you know which outsourcing strategy best fits your requirements? Business process outsourcing model are categorized under location, relationship, and pricing.
This outsourcing framework is pretty easy to grasp because the name says it all. It emphasizes the distance or location of your service provider pertinent to you.
Onsite outsourcing entails your outsourced personnel reporting to your office and collaborating with your in-house staff. In addition, inviting outsourced employees to your physical location accelerates their understanding of your procedures and systems.
Onshore outsourcing is defined as contracting your functions to a third party within the same state or country. This type of collaboration works best for companies in one country since barriers like language and cultural differences are minimal to none.
Nearshore outsourcing is the model that hires providers among the host company’s neighboring countries, most likely within the same time zone. Though there may be difficulty in linguistic aspects, most businesses that outsource nearshore are looking for a more affordable engagement cost.
If nearshore outsourcing yields to neighboring countries, offshore outsourcing, on the other hand, wanders too far to more distant locations. Offshore outsourcing mostly attracts nations with high labor costs and aims for lower prices without sacrificing the quality of the services they are paying for.
There is usually more than one outsourcing provider involved; thus, they can reside in various locations. This solution is mostly beneficial for large companies and corporations to ensure the best service quality possible.
This outsourcing model focuses on the client’s and third-party provider’s ownership and responsibility and how they handle these principles throughout the collaboration.
Staff Augmentation Model
Staff augmentation resembles onsite outsourcing. This model includes leasing the outsourced team to join your in-house employees in managing internal programs.
Managed Team Model
In this model, both the host firm and the outsourcing service provider agree to share responsibilities and designate which task belongs to whom. The client also has control over the team to ensure their desired outcomes.
Project-based outsourcing entails entrusting your entire workload to your outsourced partner. After receiving the brief and project specifications, the third party owns the contract’s life.
Business process outsourcing assists businesses in controlling costs, scaling their operation, and expanding flexibly. The increase in the popularity of call centers has helped companies generate savings and provide better service to their customers. Outsourcing now includes not just huge corporations but also small businesses. Some startups are currently using this to create a distributed workforce. The pricing structure of outsourced services evolves and varies over time. The most prevalent outsourcing pricing models are listed below.
Fixed Price (FP) Model
In a fixed pricing (FP) model, the service provider sets a standard rate for their services. This can be charged monthly or annually, depending on the client’s preference, and covers costs for tools and workspace.
Time and Materials (T&M) Model
In IT projects, the Time and Materials Model is a popular choice. This entails bidding on a project and submitting a proposal that meets the client’s needs.
Incentive-Based pricing model
In this model, service providers make bonus payments for achieving specific performance objectives beyond what is specified in the service level agreements (SLAs).
Shared Risk-Reward Model
The shared risk-reward approach is similar to the incentive-based model, where it holds an additional bonus when your outsourced staff accomplishes a certain milestone in the partnership.
Clarifying which of the several sorts of BPO model to use will substantially improve the effectiveness of your partnership and determine how the connection will develop over time. To get the greatest outcomes, thoroughly research which model best complements your procedures. Are you looking for a reliable outsourcing partner who can deliver your service on time and a budget? With Invensis, we make sure to attend to our client’s requirements. In addition, our outsourced services are being taken care of by our finance and accounting experts, who have broad expertise in accounting and compliance..