BPO industry business models – A short guide

by Andy Nguyen
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Business Process Outsourcing (BPO) is one of the great silent powerhouses behind many global business operations. This unassuming giant works tirelessly behind the scenes to spin the cogwheels of many of the largest and well-known companies all over the world. 

When you call your bank, insurance company, or utility provider, the chances are good you could be talking to someone who works for a BPO. When your claim is processed or your order is dispatched, it is quite likely to be done by someone working for a company you’ve never heard of, in a different country.

To get work done as efficiently as possible, most medium to large businesses outsource any number of non-core business processes. These can include accounting, IT, marketing, and customer service. The idea is to have those things managed by a specialist expert who can pass on economies of scale as they reuse the same infrastructure for multiple clients, while your internal team gets to focus on your core business. 

From outsourcing to growth sourcing

Knowing all your organization’s support functions are being handled by capable people frees up the time of highly qualified staff enabling them to be more creative and innovative at problem solving – which is where the ultimate advantage in business comes from.

Given the benefits of outsourcing, it’s no wonder the global BPO industry has grown from relative obscurity to be worth an estimated $216 billion in 2022.

This is at least partly thanks to a business environment that’s increasingly in flux, with faster than ever technological advances, and fierce competition. BPO flourishes in this turbulent environment as it gives a vital lifeline to companies that are trying to plot a steady course to growth while navigating the waters of change through innovation.

Outsourcing itself has evolved in recent years. From being a simple way to offload necessary tasks and get them done, it has transformed into a growth engine. It’s a way to unlock global expansion, improve service offerings and stimulate innovation.

As a result of these widening needs for global businesses, several different BPO models have evolved. Each serves a different purpose for the commissioning client and tremendously impacts how each BPO organizes itself and its service offering.

Understanding BPO business models

Landing on the right BPO model for your business needs, your growth plan, and your commercial model is absolutely crucial when looking to outsource. Every BPO model has its own set of benefits, operational considerations, constraints, and advantages. Understanding these models is key to getting the most out of outsourcing.

However, they differ in other details – such as location and operational parameters – all BPO models can be placed into one of two camps. We call them the transparent price model and the solutions-based model.

In this podcast, Time Doctor’s very own Liam Martin talks to Derek Gallimore from Outsource Accelerator about BPO models:

The transparent price model: Clarity, control and consistency at scale

In the transparent pricing model, the salary and overhead costs are charged on to the client, at cost. The BPO adds a margin to that, usually called a service fee, which is the source of its profits. This type of outsourcing is usually a high-volume, low margin game.

Clients are drawn to this model because it gives them absolute clarity on what they’re paying for with a breakdown of services and costs, which are usually priced per task or per hour. Service fees and extra charges will usually be itemized in the monthly bill.

Benefits of the transparent model

The benefits of this model are obvious. It gives businesses an accurate overview of their costs and eliminates hidden fees. Clients know exactly what services they’re paying for, and also at what scale as pricing is volume-based.

Challenges of the transparent model

It’s certainly not without its challenges though. The rigidity of the commercial model can limit flexibility, creativity and scalability. When unexpected or unplanned tasks are encountered there is no ‘wiggle room’ built in to allow for innovation. As a result, the relationship between client and BPO is often transactional in nature, which may limit the potential for a deeper and more strategic partnership.

Who is it for?

This BPO model works best for businesses that already have a good understanding of the tasks they need to outsource. They have stable processes in place and the volumes they need to handle are more-or-less predictable. In short, it’s a great option for businesses that have regular needs, like clockwork. They just need to get things done and understand the exact cost associated with each task.

The solutions based model: Innovation, flexibility and partnership

On the other side of the coin are BPOs that operate more like agencies. They provide solutions to business challenges rather than staffing challenges. These solutions are based on the value they deliver to the client, not on the cost. 

BPOs of this type of course add more margin. They will have an all-in price which means the client won’t necessarily know what proportion of that is going to the individual workers versus what is going to the BPO.

Benefits of the solutions model

This model, of course, is based on solving business problems, driving outcomes, growth, revenue, and change. It goes way beyond a ‘task per fee’ pricing approach, focusing instead on creative solutions and creating long-term value.

BPOs that work with this model – and some can provide both – are encouraged to innovate as their remuneration is often linked to results, not just the provision of a service. In this way clients can engage partners that have ‘skin in the game’ and are just as invested as the client in achieving the best results.

Challenges of the solutions model

The fluidity of this model can present challenges as costs can be less predictable and can fluctuate depending on performance. There is also a heavier onus placed on performance management and continued oversight of the outsourced operation to ensure it is delivering what is required.

Finding a BPO with the expertise and capability to pull off the desired results can also be difficult.

Who is it for?

The model works well for businesses that are embarking on large-scale projects, going through significant business transformation projects, dealing with volatile and changing environments, or which are targeting growth. An example might be a tech startup that wants to grow quickly by acquiring and onboarding new customers. 

Questions to ask yourself

To choose between the different types of BPO models and find which is the best fit for your organization, there are several questions that you need to ask.

What tasks need to be outsourced:

  • Does it represent a high, moderate, or low monetary value?
  • Does it involve basic or repeated interactions (transactional), or is it more sophisticated with significant influence on client relationships?
  • What is the frequency of interactions and the diversity of communication mediums?
  • What are the geographical locations, languages, and cultural backgrounds of the clients involved?

What is the organization’s objective in outsourcing:

  • Is the primary focus on cost reduction?
  • Or is it geared towards enhancing customer statistics, operational efficiency, and revenue generation?
  • Are you in search of a partner who can drive transformative change?
  • Or does it incorporate all the above aspects?

The final decision

Ultimately, the decision on the best BPO model for your organization comes down to the uniqueness of your company, the type of tasks you want to outsource, and what strategic goals you’re looking to achieve. 

BPOs operate different business models to suit the needs of their different clients around the globe. It opens up a wide range of possibilities for any business that is open to the idea that success doesn’t have to be achieved alone. Understanding BPOs’ business models helps you pick one that is aligned to your company’s objectives so you can unlock the opportunity to accelerate your business growth and revenue. 

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