Margins for call centre vendors have reduced steadily since the 1990’s and many have resorted to ever-increasingly complex pricing structures. Depending on the vendor and the application being outsourced, prices can be calculated per item, call, minute, contact, outcome or (as in most circumstances) per agent hour. However, even with the cost per hour calculation, there are many different variations such as fully loaded, cost plus, open-book, productive and timesheet. This variety of pricing options makes comparison difficult and many people who procure these services.
The Different Types of Pricing
Cost per hour” has many definitions. The “basic” cost is that quoted for an hour of agent’s time. The pricing model of OSP’s may or may not include the cost of management. The “ongoing” cost is the basic cost, plus the cost of all other elements necessary to provide the service, such as management time, training, systems development & management. In turn, the “fully loaded” cost is the ongoing cost, plus the cost of set-up and implementation of the programme. Basic hourly rate: this is the price per hour for an agent at a workstation. It may include additional elements such as team leaders and management, depending on how the vendor’s pricing model works. Ongoing hourly rate: this is the price per hour for an agent at a workstation, and includes all other costs such as management, training, and technology that are incurred throughout the length of the contract but does not include set-up costs. Fully loaded hourly rate: is the total cost of the project divided by the total number of hours so that even set-up costs are amortised over the contract duration. Cost plus; In this model, the vendor discloses all of the costs involved in performing the services and adds on their margin. Performance pricing; often used in outbound sales programs but some aspects of performance based pricing in all areas of call centre activity. For many, set-up costs have been eliminated totally and these costs are absorbed across contract duration or for some OSP’s are considered a free part of the sales process. As the market has become more competitive, set up costs are often the first item to be “negotiated” out of the deal.
What Increases Prices
There are a number of aspects which can increase the price. For example, if specific skills such as foreign languages or technical expertise are required, this will be accounted for in the price.
Some systems (technology) can also increase the per-hour cost. For example, if an OSP uses a clients own system, it is reasonable to recharge the cost of implementation. If an OSP uses their own contact management system, the cost of licensing is normally included within the cost-per-hour. If a client insists on a particular software, then this cost is normally recharged either as a one-off fee or is amortised over the duration of the contract.
However, the issue which can increase the overall cost more than any other is that of attrition is very expensive so the total “cost of delivery” in South-East England or Tier 1 Indian cities can be higher than in areas with lower attrition.
Outbound is and should be more expensive due to the more complex skills, attrition rates and salaries required. On average, prices when charged on a purse cost per hour are at least 10% more expensive.
Pricing Changes 2000-2008
When the offshoring explosion boomed, many domestic providers in The UK initially dropped their prices to the point where they were barely breaking even but this was necessary due to the overcapacity which existed at that time. Over time, the overcapacity has been reduced and prices have come back to a more realistic level. This levelling out of prices has also meant the disparity in prices between the most expensive and the cheapest has been reduced. There are of course bargains to be had even domestically within The UK. Prices in Northern Ireland and remote parts of Scotland tend to be cheaper along with smaller towns in North East England. Urban areas tend to be slightly more expensive than rural ones although this is distorted by the fact that urban centres tend to be larger than those in smaller towns. London and The South East is still the most expensive area but is still in favour as companies have increasingly put more resources towards vendor management. London also tends to be the favoured location for multi-lingual outsourcing despite its higher prices.
The nearshoring options in Eastern Europe have gradually become more expensive as both inflation and economic growth have been higher in the A8 countries than in Western Europe. Currency movements have also been a major influencer with The Polish Zloty now worth £0.25 as opposed to £0.14 only a few years ago.
Across Asia, prices (and the corresponding quality) varies dramatically. It’s worth breaking down Asian vendors into 2 distinct groups. The first group is small, locally owned centres focussing primarily on outbound and the second group are larger internationally (normally American) owned vendors. In India, the cost of the premium vendors can be upwards of 100% more expensive. However, the smaller vendors are typically working on a myth which is quite prevalent in parts of Asia than cheaper is better. Agents in these centres will typically speak poor English, have technology not fit for purpose and their management do not understand the complexities of running an international call centre operation. However, there are some very good examples of some high quality smaller vendors in Asia and some of the international vendors who may have impressive looking facilities have been unable to deliver the kind of service you would expect. The case is different in domestic centres where the larger providers are on average 10% cheaper than their smaller equivalents and the difference in quality is much smaller. There has been a worrying trend towards outsourced call centre services being treated as a commodity and in some industries; price can be the sole reason for vendor selection.
We are starting to see the end of pure “cost per acquisition” modes of pricing which become popular on the back of offshoring. Many domestic service providers were able to make hourly equivalent rates which made “commission-only” telemarketing a profitable business.
Undoubtedly the biggest change over the next 2-3 years will be the move towards more transactional based pricing. At Cyber City’s UK base, we have seen a dramatic increase in companies looking to use our bureau service where they pay either per call or per minute. Much of this is from companies who use such a service when dealing with media responses but much is now also coming from companies wanting to maintain a core UK presence and overflow the calls they can’t deal with. Bureau services were quite popular in the mid-1990’s in The UK but many domestic service providers moved away from offering such services. In the offshore market, there are very few other providers of such bureau services but we expect to see many more follow our lead in this area.
It’s difficult to see how outsourcers both domestically and offshore can withhold the pressure to increase their costs. With inflation for the essentials of life increasing so dramatically, wages for call centre personnel are bound to rise in the not-so-distant future. Even in the domestic hotspots of Northern Ireland, Glasgow and North East England, high demand for staff has increased wages. Offshore, the prices in India have already started to rise with the demand for quality staff outstripping the supply. Of course, there are still many poor quality offshore providers in India, The Philippines and elsewhere whose low prices reflect their desperation to win work and the lack of experience they have.