The back burner strategy for outsourcing

I don’t see BPO companies who think like this. Most BPO companies have really obtuse pricing strategies. It is too bad, because they would be able to grow more, and pinpoint what their clients want with a bit more innovation in their pricing strategy.

Imagine that you are an outsourcing company. Imagine that you have four employees that do a type of task. Perhaps they are call center workers, or perhaps programmers. Programmers are a better example since they often do a few hours a week for one client and a few hours for another client. But, the type of work they do is immaterial. The point is that in any given type of shop environment, you might have certain workers who are just busy all the time, and others who might have free time. Or, you might want to hire someone new, but don’t have enough work to keep them busy full time. So, what do you do?

My suggestion is NOT to have a flat labor rate. The rate for labor should depend on:

(1) Which employee is assigned to a particular account

(2) How busy that employee has been during the previous quarter.

If they were really busy, then you raise their hourly rate by several percent each quarter they were booked up, until you reach an equilibrium.

(3) Charge based on the time sensitivity of the job.

Front Burner Jobs
Let’s say that you have three rates for each employee. Let’s say that Mary’s time will be billed at $100 per hour. However, if you have a rush job, Mary will put you first — no matter what. Since other people will be delayed, it is only natural that you would have to bill more for the rush job. “Front Burner” or rush jobs might be billed at $130 per hour for example. In real life, perhaps only $115 or $120. You should taylor your rate so that 15-25% of any employees monthly labor consists of “Front Burner” jobs.

Back Burner Jobs
On the other hand, what if a client wants you to work for cheap, but doesn’t care when you get the project done. In such a case, you could charge them $60 per hour for Mary’s work. However, Mary would only work on your job when she has no more medium burner or front burner jobs to do. You might be waiting for months to get even one hour of Mary’s time. The problem is that your client might LEAVE if nothing gets done on their project for months.

A Back Burner Contract Idea
So, you need a CONTRACT where you guarantee the client a certain amount of work that you will get done. In exchange for offering a low price, you need to get flexibility from the client in exchange. I feel this is fair. After all, if the client needs your company to be flexible by doing a rush job, you charge them more, right? Let’s say that the client has a job that is 200 hours of labor to complete. Let’s say that the client is willing to give you up to a year to accomplish this task, but you can go as fast as you want. However, the client wants to make sure that you are not completely slacking off, otherwise there is no point in assigning this project to you. So, you can have a contract that states that you will do at least 15 hours of work per month on their contract, but you can do as much as 100 hours per work on the job too if you like.

The Next Issue – WHO will be working on the Back Burner Job?
Back Burner jobs are perfect if you have an employee who is no longer in demand. If your previous star employee only has an average of 20 hours per week of billable work, and you don’t want to fire them, then a back burner job would cover your costs to keep that employee around. On the other hand, what if you never know which of your employees will have time to work on a project? Whichever has extra time on their hands would be perfect for that back burner project. On a brigher note, if your company is growing, your new employee might have very few paying jobs to keep him busy, so a back burner job would be great for the first few months until you can dump some high paying work on him. The problem is, that your client might like Mary to be doing the work, and if Mary gets busy, the client might not like it if John (the new guy) starts picking up where Mary left off. After all John is new and might not be any good. If you write a contract, you have to specify WHO is authorized to do the work on a particular project, or at least what skill level of people. Certain BPO jobs require a specific skill level after all.

It is complicated having different employees all with differing hourly rates, and then to add the complexity of billing based on time sensitivity. However, this way you can deliver optimal results to your clients and be more popular. To me, it makes sense if a company aims for having 10-20% of their total work being back burner work. Why? This way you have plenty of time to accept rush jobs, so you don’t keep your paying customers waiting… Think about it.

Many BPO companies will take on a new client and promise to get their project done fast. Then, they will get a much bigger client, and put the smaller client on the back burner without consent. This is a dirty business technique used by so many programming houses. They basically ruin the schedule of the smaller company, and lose them as a client. Then, the big client might dump the BPO company as well, leaving them with NO clients. It is much better to just keep time commitments by charging people enough to warrant overtime pay, and the hassle of an uneven schedule.

The end!

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