Tag Archives: BPO Jobs

The back burner strategy for outsourcing

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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!

Labor Costs & Overall Pricing

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Labor costs within a pricing formula

The way large companies choose which companies to outsource work to is based on a very complicated algorithmic formula that takes into consideration many aspects. We’re all aware that labor cost is one of the major considerations that effect the price of outsourced labor. But, there is a lot more involved, and since prices are always changing, long term cost considerations need to be included in a calculation.

Per capita income and prices
Statistically, India is a very poor country with per capita income around $700 per year (rough figure) while American income is around $40,000 per year. Therefore, the price of labor in India must be 57 times as cheap, right? Wrong. American income doesn’t vary so dramatically from place to place and from city to countryside. Although extreme cases exist including NYC which has wages that might be double what wages are for similar jobs in Mississippi, the rest of the country doesn’t vary so significantly. There are parts of India such as Bangalore or Chennai where a highly skilled Indian software worker makes $20,000 to $100,000 per year while a peasant in the Bihari countryside might only make 50 cents per day and might only eat once per day (on a good day).

The BPO jobs that happen in India are generally located in high cost urban areas where the price of labor and everything else is sky high. This is why the price of outsourced labor in India is only four times as cheap as in the U.S., and not fifty-seven times as cheap.

Job conditions in India
The next problem is that inflated and rising land prices in India make companies conserve on space. India has less land than the U.S., yet has four times the population, and the population shows no sign of declining either. Indians are typically squeezed in offices with their small desks crammed together like sardines. The American “dream” of having your own 6×6 cubical simply doesn’t exist for most Indian Software or call center workers. The price of land continues to rise in Indian metros making outsouring costs higher and higer. A 2 bedroom condo in the outskirts of Pune costs even more than it would in Portland, OR on a square foot by square foot basis.

High turnover is another cost in India
A few decades ago, it was only the lucky in India who could get a decent job, and the rest had to take menial jobs just to survive working for pennies per day.  Nowadays, there are too many good BPO and Indian software jobs. Its common for young techno-saavy Indians to skip from job to job chasing better working conditions, more likeable bosses, higher salaries, and nicer looking female work counterparts. Every time an employee jumps boat, that costs the boss a bundle to try to find someone new and train them. This cost gets transfered to the customer in the long run.

Management costs can vary
This is a very difficult issue to pinpoint, but there is always a management cost for the company who hires and outsourcing company. If your company is nearby or on a similar time zone, communication is easier and travel to see your outsourcing company is quick. If the company is working while you are sleeping, unless you sleep late, you will have trouble interacting with that company, not to mention the 30 hour plane flight to Mumbai! If you need to visit a company frequently, then outsourcing to India will carry a hefty management tab, but what if you only need to visit for initiating new complicated projects?

Transportation costs can add up
A business that involves shipping would choose a new location primarily on access to good transportation arteries with low warehousing costs. Reno and Memphis are famous shipping hubs in the U.S. as they are centrally located for their respective East and West halves of the nation. A call center doesn’t need to ship anything, but there are still costs for moving workers around. Cab fare in Hyderabad is not cheap. If a Hyderabad software company pays worker’s transportation, it can add up, even if workers cab-pool. Transport is yet another factor in the pricing formula.

Labor costs are only about 20-30% of the total cost of outsourced work. The rest go to infrastructure, management, and other costs.

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