Contact Center Pricing Models Explained

Pricing Models

Contact Center Pricing Models
Which is best for your business?

By: Dave Loofburrow, Kim Kyllo-Corson, and Jon Browning

Strategic Sourcing Advisors helps companies determine their best site location strategy and find the right contact center outsourcing partner.

“You get what you pay for” is a time-honored axiom which speaks to a fundamental notion: incentives drive actions. This is often pointedly accurate in the case of contracting for contact center services. One of the most important elements of any contact center services agreement is the pricing model. Yet it is critical to recognize that the pricing model will influence much more than just cost.

For many years the primary pricing model in the contact center industry was based on FTE, or Full-Time Equivalent, cost structures; in essence, this is a fee based on headcount utilized. As the contact center industry has evolved, additional pricing models have emerged that are often more effective for achieving desired results, and may also support a productive working relationship between the contact center service provider and their client. For example, using a pricing model that provides incentives to the provider based on achieving defined criteria such as customer satisfaction or revenue per contact may actually improve your company’s bottom line when applied appropriately.

The pricing model established with a contact center provider should be based on the unique needs of your business, yet also consider the maturity of your relationship with the provider. If the outsourcing model is relatively new for your business, it may be advisable to use a straightforward pricing model based on expected volume where there is shared risk between the provider and customer. With greater experience and/or a mature relationship with the provider, you may find that alternative pricing models provide the opportunity to achieve better outcomes.

Following are several pricing model options to consider as you develop your pricing strategy for outsourced contact center services:

The Cost-Plus Model
The provider is paid for actual costs incurred in delivering the service, plus a predetermined percentage or fixed amount per period. For instance, the supplier will charge for all actual costs of labor (including agents and dedicated management) and overhead (including indirect/shared management components such as HR and IT, facilities, etc.), and add a 10% profit margin. An example of this pricing model is an FTE-based or cost per headcount model.

Recognize that with this model “provider cost” can often be a rather opaque figure, and it is advisable to seek quotes from multiple providers for the same book of business for comparative purposes.  Also, be aware that the provider could have little incentive to manage staffing costs and utilization rates with this model, as the customer bears all cost-related risk.

Per Unit Pricing
The customer pays based on the number of service units used.  You agree on a standard rate regardless of the volume of service units used. An example of this pricing model is a set fee for each call or incident handled by the contact center. Alternatively, you may want to consider unit pricing based on resource utilization that is adjusted for volumes above or below established thresholds – effectively providing the potential for volume pricing.

With this model, the provider is responsible for staffing and productivity risks while the customer must provide an accurate forecast of volume.  Unit pricing is ideal for incidents where there is a large volume of calls with predictable average minutes per incident.

A variation of the per incident unit pricing model is per-minute pricing.  The per-minute model is very similar to per-incident with one notable exception – which party assumes financial risk for call variation.  With per-minute, the provider is compensated for all labor time and does not have an explicit incentive to improve productivity, like reducing average call handle time.

With a per incident model, provider profit margins are at risk if calls run longer than anticipated.  Per incident encourages providers to handle calls quickly but this can have an adverse impact on call resolution rates and customer satisfaction.  Per-minute pricing in its purest form gives the provider little incentive to improve productivity. One way to overcome this is to use a per-minute unit pricing model that has tiered pricing to encourage efficiency – similar to the threshold pricing discussed above, but with the thresholds based on minutes not incident volumes.

Fixed Price
With a fixed price model, the service provider charges the same periodic fee regardless of the volume of services consumed. Use of this pricing model is uncommon, due to typical work volume fluctuations. Further, this model does little to encourage strategic alignment of the provider to client goals.

With incentive-based pricing, payment incentives are used to encourage the provider to deliver services that achieve higher levels of performance.  Penalties may also be incorporated into this model as an additional incentive to maintain minimum performance levels. This model encourages the service provider to achieve results that are fully aligned with the client’s goals. For example, paying a bonus to the service provider when defined targets for Revenue per Call or First Contact Resolution are achieved.

The provider receives a portion of the benefits (i.e. savings or additional revenue) generated for the client in excess of an established threshold.  This is a variation of the Incentive-based pricing model, where the provider is paid a percentage of the “gain” (as opposed to a fixed bonus payment) in lieu of or in addition to the baseline pricing structure. As with Incentive-based pricing, this model encourages the service provider to achieve results that are directly aligned with the client’s goals.

Managed Service
The managed service model is a highly collaborative outsourcing business model where both the client and service provider have an economic interest in one another’s success. This model can take a variety of forms, but at its core is a model where the service provider is responsible for service delivery as well as the management of that service, subject to the performance parameters established by the client. This model in its fullest sense is the most mature and decentralized outsource service and pricing model and requires significant maturity and trust between the client and service provider.

Choosing the Right Model
The Pricing model is not only important to the service provider to determine how they will be paid for their services. It is also critical to the client to incentivize the service provider to deliver results that are closely aligned to the client’s service objectives. This alignment is most important to ensure that outsourced services support the strategic goals of the client organization. For example, cost reduction as an organizational goal for the client may be achieved in many ways: reduced call volumes, higher first call resolution, reduced average handle times, and fewer call-backs.

Yet most of these metrics can create tension with other metrics (e.g. improved first call resolution may result in longer call handle times). As such, the client and service provider need to consider the potential for these outcomes and work together to pursue the best way to achieve the desired objective, in this case cost reduction, by employing the right means and methods.

When considering different pricing models, start by defining the desired outcomes, then assess your organization’s maturity level and expertise, as well as that of your provider, to align the pricing model with your goals and how you will measure their achievement.

It is also important to avoid perverse incentives. You may want to drive lower costs through outsourcing, but if you focus on finding the lowest cost provider you may fall short of your goals. For example, agent retention correlates to higher resolution rates. Seeking the lowest cost provider may mean you’re buying poor agent hiring, training, and/or management practices that lead to high agent attrition, which in turn could result in damaged brand perception, lower repeat sales, higher returns, etc.

In summary, when considering which pricing model may be best for you, start by making an informed assessment of your organization’s outsourced service management maturity. Consider the capabilities of your selected service provider as well. Determine the most important desired outcomes for your contact center service, and how the right pricing structure and incentives can help you achieve those outcomes most effectively with your service provider.

Depending on the circumstances and objectives, you can select a pricing model that aligns with your objectives. And recognize that as circumstances and objectives change over time, your pricing model may need to change to assure that alignment continues.

About Strategic Sourcing Advisors (SSA)
SSA helps buyers of contact center services find the right providers and locations for their specific needs – at no cost or obligation.  Our team of former Microsoft leaders have decades of experience buying contact center services and we understand the difficulty of finding a great outsource partner in an ever-changing market.

We’ve managed over $700 million of annual global contact center business, working with many of the best providers in the industry.  Our team led Microsoft’s global contact center consolidation initiative, recognized by IAOP as an industry best practice.  We apply this experience to match you with the right outsource partner to accomplish your process improvement and cost reduction goals.

Contact us today at or learn more about our services at

Could Impact Sourcing be the Next Global Hiring Trend?

Impact Sourcing

By Jon Browning
CEO, Strategic Sourcing Advisors

The Business Process Outsourcing industry (BPO) is undergoing a transformation that could soon be adopted by other industries.  Many BPO companies are now implementing a new hiring model commonly referred to as impact sourcing, designed to combine socially responsible hiring practices with an opportunity to engage untapped labor markets. 

But is there a business case for being socially responsible through hiring strategies?  Many companies are finding the model competes well with traditional labor practices in terms of cost, performance, and hiring risk.

What is Impact Sourcing?
Impact sourcing is an inclusive employment practice through which companies intentionally hire people who would otherwise have limited prospects for sustainable jobs.  For example, by providing jobs and training to youth, impact sourcing can be the start of a meaningful career path leading to a lifetime of employment.

Impact sourcing is generally defined by two characteristics:

  1. Creating jobs in underserved communities where there is high unemployment.
  2. Or, in established BPO labor markets, intentionally hiring workers who have few prospects for sustainable jobs and providing the training needed for them to be successful.

Examples of Impact Sourcing
There are common misconceptions about this hiring model; impact sourcing is not just about employing people in developing countries.  The model is relevant in every country and many companies employ this practice in the United States.  For example, intentionally hiring disabled workers in the US, or recruiting youth in areas of high unemployment are both classified as impact sourcing. 

Global examples include training and job placement for victims rescued from human trafficking, recruiting young people in Sub-Saharan Africa for IT jobs, and hiring women in communities where there is a disproportionately high unemployment rate for them.

The Global Impact Sourcing Coalition
In 2011, The Rockefeller Foundation launched the Digital Jobs Africa and global impact sourcing initiative to create sustainable employment opportunities and skills training for youth in areas of high unemployment.  The global BPO industry is now beginning to embrace this hiring practice and encourage adoption in other industries. 

This led to a partnership between the Rockefeller Foundation and BSR (Business for Social Responsibility) to launch the Global Impact Sourcing Coalition (GISC) in September, 2016.  The GISC now includes membership of many of the largest BPO organizations who represent over 1.2 million BPO workers, about 8% of the global industry since the coalition’s inception.  These companies share a common purpose and commitment to impact sourcing to bring jobs to previously overlooked communities.

Is there a Business Case for Impact Sourcing?
Impact sourcing is not philanthropy and cannot be just about corporate social responsibility.  The industry must demonstrate the financial and operational business case for this hiring model.  As it happens, there is a strong business case for impact sourcing.  Several recent studies including one by the Everest Group in 2016 have proven the benefits.

The cost of impact sourcing is comparable to traditional hiring models for the BPO industry yet it provides business advantages that include 15% - 40% lower attrition rates, higher levels of employee motivation, and access to new sources of untapped labor markets.  As a result, the total cost of impact sourcing workers is often less than traditional workers because they stay longer on the job, reducing recruitment and training expenses.  Their longevity in the workplace also translates to higher levels of proficiency over time. 

The Global Impact Sourcing Award
IAOP has long supported this effort and in 2017 began a partnership with the Rockefeller Foundation to create the Global Impacting Sourcing Award (GISA), which recognizes industry professionals who are leaders in impact sourcing.  BPO companies are recognized for how they build impact sourcing into their employment and procurement strategies and how they have impacted communities in ways to reduce unemployment and create opportunities for sustainable jobs.

How you can Leverage Impact Sourcing
With so much emphasis put on corporate social responsibility today, procurement leaders are looking for ways to show they are making a positive impact on society.  There is something that each of us can do to help reduce youth unemployment and poverty and for many, impact sourcing offers this opportunity.  A simple step is to encourage your BPO suppliers who employ outsourced workers, to add impact sourcing to their labor market strategy and ask them to quantify how many impact sourcing workers are attributed to your business.  To learn more about impact sourcing and the Global Impact Sourcing Coalition:

Jon Browning
CEO, Strategic Sourcing Advisors

The Foundation for Successful Contact Center Outsourcing

SSA’s leadership team shares their insights for a successful outsourced services implementation. This information is especially beneficial to companies that are new to outsourcing as well as those interested in improving their outsourced contact center services.

Topics for this webinar presentation include:

* Considerations when transitioning from an internal to outsourced contact center

* Insights for an effective outsourced provider selection process

* Important steps to prepare for successful outsourced contact center operations

Click on the picture below for the presentation:

Five Procurement Best Practices for Contact Center Buyers

by Jon Browning
CEO, Strategic Sourcing Advisors

Selecting a contact center provider can be a challenge.  Do you go for the biggest brand in town or a niche provider?  Should you consider offshore options or keep the outsourced work as close as possible?  Deciding that you need to find an outsource provider is the start of a process that if approached in the right way, will help you achieve your long-term business strategy.

At Microsoft, I was responsible for leading the customer support sourcing strategy with over 20,000 agents supporting 47 languages.  During this time, our team led a two-year, cross-organizational effort to consolidate suppliers.  The project was recognized as an industry best practice by the International Association of Outsourcing Professionals (IAOP) and as one of the largest global Business Process Outsourcing (BPO) consolidations by the management consultants at COPC.

Having a well-defined approach to contact center outsourcing is vital to making good choices.  Naturally the most important questions and answers will differ based on your industry and the exact service required, but there are some common steps that I recommend based on my experience leading many RFPs for contact center business.

Here are the top five best practices that I recommend to anyone in the process of selecting a contact center provider:

1.  Define what outsourcing success means to you
2.  Don’t focus on cost alone
3.  Seek out a real partnership
4.  Define your selection criteria
5.  Talk to reference customers 

Before you start – define what outsourcing success means to you
As a buyer, you should create a set of guiding principles, have an expected outcome in mind, and research your options prior to starting the procurement process.  At Microsoft, when new outsourcing proposals were raised during the procurement process, we always put them through the filter of our Guiding Principles to ensure we remained in alignment with our overall objectives.

Outsourcing should provide new options, not restrict the strategy.  Define your location options right from the start of the process.  Are you only focused on US-based services, or offshore, or both?  Have you defined the pros and cons for these different delivery strategies?

Additionally, you should have realistic and proven performance targets for the provider – and be able to explain why they’re important.  You should be able to show how the targets were determined, how they will be measured, and the expected timeframe within which they should be met by the provider.

Finally, you should balance your provider/vendor portfolio to have the right number for your size of business.  If too few, you introduce new risks associated with business continuance, reducing your price negotiation leverage, or impacting a provider’s incentive for continuous improvement.  If you have too many providers, you can dilute the negotiating power of your business size and it can also be more cumbersome to manage several providers.

At Strategic Sourcing Advisors, we work with buyers to find the sweet spot for the number of providers and sites to maximize business leverage and efficiency.

Don’t focus on cost alone
Remember, what seems like a bargain could actually cost much more in the long run.  Less expensive providers sometimes recruit from less qualified candidate pools to save on wage expense and may not invest sufficiently in an environment that supports retention.  This can yield higher attrition rates when agents are unable to meet expectations, and may in turn lead to chronic poor performance because agents are constantly being replaced and new agents trained.

A chronically inexperienced agent team will always be making rookie mistakes.  However, when a provider draws from a more experienced candidate pool, this often results in quicker ramp up times, and agents that reach proficiency much faster and stay longer than others.

Cost is important, but it’s dangerous to let cost alone be the main driver when choosing a service provider.  Explore other variables such as talent scalability and a provider’s overall approach to your business before comparing cost because the price of choosing the wrong partner will be far greater.

Seek out a real partnership
When you begin an outsourcing relationship, you are not just choosing a vendor.  You are selecting a long-term partner who you should expect will be an expert working for your business.  They should advise you on how to improve and grow your business.

Good providers know this is expected of them but are sometimes unable to help if a buyer won’t include them as a valued partner in strategic discussions.  We outsource to companies because they are experts in their fields who have broad experience across industries.  Take advantage of this expertise and select a partner that can add value to your internal leadership team.

Some questions to consider include:
– Can the provider scale up with your business growth?
– Are they financially stable and prepared to invest in your business?
– Is your business too large or too small for the them? If the provider is too big, you risk not having their full attention on your business.  If they are too small, you could destabilize their operations if your business requires flexibility.

Define your selection criteria 
Defining your final selection criteria before you start is very important because it helps to reduce the non-business and emotional elements of deciding which provider to choose.  Your RFP team should decide early in the procurement process exactly how providers should be evaluated using a numerical score.

Factors that go into this evaluation should include management strength, performance history based on their customer references, their proposed governance model, long-term scalability, security requirements, and overall provider financial health. Pricing should be evaluated and scored separately from all other business metrics.  This provides an opportunity to evaluate quality vs. cost across the candidates.

Talk to reference customers
All reputable contact center providers will connect you to their existing clients.  Use these connections to explore how a provider is really delivering the service, and to understand the culture of the relationship between client and provider.  Determine if there are any areas the clients say could be improved.  Does every client appear to be genuinely satisfied with all aspects of the service they are receiving?

These five practices are important when considered together, but the single most important factor is to approach the procurement process with an emphasis on creating a strong business partnership.  Choosing a contact center provider that is focused on your business today while keeping an eye on future changes in our industry will help your business succeed in the long-term. 

About Strategic Sourcing Advisors (SSA)
SSA helps buyers of contact center services find the right providers and locations for their specific needs – at no cost or obligation.  Our team of former Microsoft leaders have decades of experience buying contact center services and we understand the difficulty of finding a great outsource partner in an ever-changing market.

We’ve managed over $700 million of global contact center business, working with many of the best providers in the industry.  Our team led Microsoft’s global contact center consolidation initiative, recognized by IAOP as an industry best practice.  We apply this experience to match you with the right outsource partner to accomplish your process improvement and cost reduction goals.

Jon Browning, CEO