The Hindu Business Line : BPO firms change tack, see better revenues

Bangalore Sept 10 Indian BPO firms are beginning to see revenues from new pricing models such as outcome-based and transaction-based models as they offer more of non-voice, platform-based services diversifying from the traditional voice-based offerings.

In a transaction-based pricing model, which is similar to pay-per-use model, the client pays the vendor for the number of transactions performed.

In some cases, pricing also depends on the value of the transaction. In the outcome-based model, pricing is linked to the outcome or output delivered to the clients.

New models

Revenues are on the rise from such newer pricing models over the last year or two for these BPO vendors as they move away from selling services based on the input-based pricing or FTE (full time equivalent) model, wherein services are charged per person on hourly basis.

Such a shift is also helping these vendors improve their profitability, besides driving their non-linear growth.

Investment ramp-up

“BPOs are moving away quickly from FTE-based revenue model to offering platform-based services,” said Mr Avinash Vashistha, CEO of Tholons Inc, an outsourcing advisory firm. Vendors such as Tata Consultancy Services Ltd, Infosys Technologies Ltd and Wipro Ltd are investing in building and owning platforms, which helps them to offer services on newer pricing models.

WiproBPO earns about 40 per cent of its revenues from the transaction based pricing model.

“There has been an increase in transaction based revenues in the recent past,” said Mr Ashutosh Vaidya, head of WiproBPO.

Infosys gains

Similarly, the BPO operations of Infosys Technologies Ltd earned about a seventh of its revenues from the transaction pricing model.

Infosys BPO has seen its transaction- based revenues rise significantly in the past two years, up from less than half-a-per cent in fiscal 2006 to about 14 per cent in fiscal 2008.

“Revenues from transaction-based pricing model will certainly increase over a period of time because of our focus on platform-based approach and willingness to sign deals on that model,” Mr Amitabh Chaudhry, Chief Executive Officer and Managing director, InfosysBPO, had recently told analysts in Chennai.

Mr Mathew Vallance, Global Head of Business Development at the Mumbai headquartered Firstsource Solutions Ltd, said such new pricing models, besides improving the profit margins, helps vendors to differentiate in the market place through better efficiency and productivity gains.

“It also helps us to demonstrate that we can innovate,” Mr Vallance said.

Immediate impact unlikely

However, Mr Vashistha felt that shifting to such newer pricing models was unlikely to have an immediate impact on margins of these companies as they would have invested heavily in building platforms.

Firstsource earns about 60 per cent of its revenues from output or outcome based pricing, wherein earnings are directly linked to the outcome generated for the client.

For example, in collections business, where outcome-based pricing is well established, revenues for the service provider is paid as percentage of the debt recovered.

Mr Vallance said Firstsource collection business is entirely outcome-based, while the company adopts output and outcome pricing for various part of its healthcare business.