Outcomes-based pricing: Done right. Win deals.

cloud market 2016 CSC Blogs

The potential for outcomes-based pricing has become a primary area of focus for business process services (BPS) commercial contracting. Clients and outsourcers alike have a keen interest in exploring how to make this approach work. Done right, this can be a differentiator in a winning deal, with benefits accruing to both parties.

However, the majority of BPS contracts are still priced on a transactional/full-time equivalent (FTE) basis. In part, this is due to inertia and familiarity, but it’s also because conditions have to be right for outcomes-based methodologies to be effective.

Here are 5 key factors to consider in deciding whether outcomes-based pricing can be successful:

  1. Baseline performance. Outcomes-based pricing relies on having a solid base of historical data available for volume forecasting. It’s also important to understand the nature of volume trends — whether they are consistent and predictable, or whether they vary based on market launches, seasons or other influences.
  2. Outcomes-based pricing must have measurable outcomes. Success is most likely when transactions for in-scope services are clearly defined and measurable, and when those transactions are highly standardized and repetitive in nature. Based on these factors, the parties need to agree on measurable outcomes and plan on regular re-evaluation to ensure that their expectations remain in alignment. To the extent possible, it’s also worth exploring whether outcomes can be tied directly to outsourcer performance.
  3. The relationship between client and outsourcer has to be solid. There must be a partnership level of trust between both parties that, mutually, seek a “win-win” arrangement. It should be noted that this is easier to accomplish when the underlying business process is outsourced to a single provider. This ensures ownership and accountability of workflow, procedures, etc.
  4. Risk management is important. Assess whether the transaction mix is relatively stable or whether it may cause significant variation in workload. Risk can be better managed if service level flexibility can be tied to business conditions. The parties should also explore ways to manage risk by capping payouts at both ends. For example, a sales center where the outsourcer earns 15 percent of the client revenue it closes can be protected with both a fixed minimum charge and a cap on the 15% earnings.
  5. Finally, there’s the matter of timing. Consider that it is often better to start with a transaction or FTE pricing structure and then migrate to an outcomes-based structure over time, as baseline data and trust develops.

In light of the increasing market impact of automation and digital transformation, we will see more movement from traditional pricing structures like FTE and transaction towards outcomes-based.  With the right conditions and strong partnership collaboration, a successful outcomes-based pricing structure can be created to provide the proper incentives for driving client business performance and outsourcer success.

Mike Wright is DXC’s BPS CX solution capability lead. He has more than 25 years of experience in BPS Customer Experience Services/CRM. He is a graduate of the University of Virginia and resides in Michigan.

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