When outsourcing customer service, selecting the appropriate payment model can determine the success of your program. Each model has its advantages and disadvantages. The best model for your work typically depends on the program’s size, your ability to track agent time delivering services, and who is responsible for forecasting, staffing, and scheduling. Let’s explore various payment models and examine their pros and cons to help you make an informed decision.
Price per Production Hour
Price per production hour is the most common payment model in customer service outsourcing. This model is especially prevalent when there is a “virtual contact center” or when tracking agent engagement time separately from waiting for a transaction is difficult. For example, email transactions can be hard to track because agents may spend varying amounts of time waiting for responses.
How It Works
In this model, clients pay for the total time agents spend waiting for and handling transactions. This means that all the time an agent spends logged in, whether actively engaged with a customer or waiting for the next interaction, is billable to the client.
Advantages
- Simplicity: This model is straightforward to implement and manage. Clients pay for the total hours worked by agents, making budgeting easier.
- Transparency: Clients can easily track and correlate the hours worked with the cost.
Disadvantages
- Risk to Clients: The risk of poor forecasting and scheduling falls on the client. If the volume of interactions is lower than expected, clients still pay for agents’ idle time.
- Potential Inefficiencies: Since clients pay for all logged-in time, the outsourcing partner has less incentive to optimize agent productivity.
Price per Handle Minute
Price per handle minute is the next most common payment model in customer service outsourcing. This model is typically used in a single-source environment where the outsourcing partner manages the entire customer service operation.
How It Works
In this model, clients pay only for agents’ time actively handling customer interactions. The time agents spend waiting between interactions is not billable to the client.
Advantages
- Efficiency: This model incentivizes the outsourcing partner to optimize scheduling and forecasting to minimize idle time.
- Cost Control: Clients only pay for the actual service delivered, making costs more predictable and controllable.
Disadvantages
- Risk to Partners: The outsourcing partner assumes the risk of poor forecasting and scheduling. If they fail to predict interaction volumes accurately, they may incur higher costs without corresponding revenue.
- Complexity: Tracking handle minutes accurately requires robust systems and processes, which can add to the operational complexity.
Price per Transaction
The price per transaction model is similar to the price per handle minute but with a few key differences. This model requires frequent renegotiation if the transaction mix or handle time changes. We only recommend this model in exceptionally stable environments.
How It Works
In this model, clients pay a fixed price for each completed transaction, regardless of the time it takes to handle it.
Advantages
- Predictability: Clients know exactly how much they will pay for each transaction, making budgeting easier.
- Efficiency Incentives: This model encourages the outsourcing partner to handle transactions quickly and efficiently.
Disadvantages
- Renegotiation: Changes in transaction mix or handle time require frequent renegotiation, which can be time-consuming and complex.
- Risk of Rushed Service: Without proper controls, agents may rush through interactions to complete more transactions, potentially lowering resolution rates and customer satisfaction.
Price per Agent
The price-per-agent model is typically the most expensive, and we recommend it only for small programs or staff augmentation.
How it works
In this model, clients pay a fixed price for each agent, regardless of the number of transactions handled or the time spent on them.
Advantages
- Simplicity: This model is straightforward, with fixed costs for each agent, simplifying budgeting.
- Flexibility: It allows for easy scaling up or down of the workforce based on needs.
Disadvantages
- High Cost: This model can be the most expensive, especially if agent productivity is not optimized.
- Risk to Clients: Clients bear the risk of poor agent performance, as they pay a fixed cost regardless of productivity.
Overview of Payment Models
Each payment model has advantages and disadvantages. Understanding these is essential to making an informed decision that aligns with your business needs.
Comparing Advantages
- Transparency and Predictability: Most models offer transparency and predictability in costs, making budgeting and forecasting expenses easier.
- Incentives for Efficiency: Models like price per handle minute and price per transaction incentivize the outsourcing partner to optimize efficiency and productivity.
Comparing Disadvantages
- Risk Allocation: Different models allocate risks differently between the client and the outsourcing partner. Choose a model that aligns with your risk tolerance and operational capabilities.
- Potential for Aberrant Behavior: Some models can drive aberrant behavior on the part of the BPO partner. For example, price per transaction incentivizes efficiency but may lead to rushed service and lower customer satisfaction if not properly managed.
Mitigating Risks
Consider implementing pay-for-performance models to mitigate the risks associated with each payment model. These models tie a portion of the outsourcing partner’s compensation to performance metrics, such as customer satisfaction, resolution rates, and service quality.
Pay-for-Performance Models
- Incentives for Quality: Pay-for-performance models incentivize the outsourcing partner to maintain high service quality and customer satisfaction.
- Balanced Approach: These models provide a balanced approach by combining fixed payments with performance-based incentives, aligning the interests of the client and the outsourcing partner.
Conclusion
Choosing the right payment model for customer service outsourcing impacts your program’s success. Each model has advantages and disadvantages, and the best choice depends on your needs, program size, and operational capabilities. By understanding the nuances of each model and implementing strategies to mitigate potential risks, you can ensure a successful and efficient outsourcing partnership.
Judi Bolden, Vice President at COPC Inc., brings over 30 years of expertise in performance improvement, operational management and change management. At Groupon, she led significant enhancements in global support and vendor operations, boosting customer satisfaction and operational efficiency.
Judi is a sought-after speaker with an MBA from Houston Baptist University and a Lean Six Sigma Master Black Belt. Her leadership spans 36 countries, where she’s renowned for her practical solutions to enhancing contact center operations and training.