8 Types of outsourcing pricing models

What are the main outsourcing pricing models?

Outsourcing pricing models are the ways a provider charges for its work, from staffing and fixed price to profit-sharing and shared risk-reward. The right model depends on your goals, your budget, and how much control you want.

• Most outsourcing pricing models fall into eight common types.
• Some models fix the cost, while others flex with usage or results.
• You can also mix models so both sides share the risk and reward.

Business process outsourcing helps businesses control costs, scale their teams, and grow with more flexibility.

Since call centers took off, outsourcing has helped firms save money and serve customers better. As a result, it also builds a strong partnership between clients and their providers.

Today, outsourcing is not just for big firms. In fact, small businesses use it too. For example, some startups now build a distributed workforce this way.

8 outsourcing pricing models

Over time, the pricing of outsourced services keeps changing. So here are the most common outsourcing pricing models today.

1. Staffing model

The staffing model is a setup where clients hire resources from a provider for a set period.

In BPOs, staffing comes with workspaces, desktops, internet phones, and other tools the team needs. Meanwhile, the provider and the staff usually sit far from the client, in another city or country.

One big benefit is control. For example, clients may send in-house staff to train and guide their team. As a result, they can scale the team up or down as demand shifts.

2. Fixed price (FP) model

In a fixed price model, a standard rate is set by the service provider for its work.

This may be billed monthly or yearly, based on what the client prefers. Also, it already includes the cost of tools and workspace.

Still, fixed prices can shift with a few factors, such as salaries, incentives, and success targets.

Fixed price adjustments

Fixed price adjustments can take these forms.

Fixed price with economic price adjustment (FP EPA)

A provider’s price may change with the cost of labor, materials, and workspace. For example, senior salaries, better tools, or a bigger team can all move the rate.

Fixed price with incentive (FPI)

Fixed pricing can also add an incentive. However, the bonus here is fixed and tied to the client’s metrics. For instance, a sales team may earn a quarterly bonus when it beats its quota by up to 10%.

FPI successive target (FPI ST)

This works like FPI. However, FPI ST lets clients adjust their target costs and profit for the whole project.

So they set an initial price at the start. Then, as the work improves, they slowly change the incentives and the timing.

3. Cost reimbursable model

The cost reimbursable model, or cost-plus model, lets the provider cap its expenses and then add a set profit margin.

This differs from the fixed price model, where the fee stays the same no matter the spend. In addition, the provider may or may not pair cost-plus with incentive pricing.

Cost reimbursable adjustment

Cost reimbursable adjustment can take these forms.

Cost Plus Fixed Fee (CPFF)

Here the client pays a fixed fee once the project ends. Meanwhile, the running cost can vary across the project. So providers earn their profit from the fixed fee alone.

Cost Plus Incentive (CPI)

Unlike CPFF, CPI adds a bonus only when the provider beats its targets. As a result, the reward is tied to the client’s metrics.

Cost Plus Award (CPA)

Unlike CPI, CPA pays the provider based on work quality. So it often depends on hitting a set timeline, deliverable, or standard.

4. Time and materials (T&M) model

Also called the cost and materials (C&M) model, the time and materials (T&M) model is common in long-term IT work. Here providers bid on a project and set a proposal around the client’s needs.

You may also see it in a build-operate-transfer (BOT) process. In that case, the provider first builds and runs the project.

In addition, the T&M model asks the provider to work in-house or under the client’s watch.

T&M variation

The time and materials model has one main variation.

T&M with cap

To keep costs in check, the client sets a cap on a project. As a result, they protect the budget and avoid runaway charges.

5. Consumption-based pricing model

Cloud providers, meanwhile, mostly use consumption-based pricing for their services.

Here they bill clients for actual usage each month or year. So clients enjoy real flexibility, since they only pay for what they use.

For example:

• Call centers allow a per-minute charge for clients who expect few calls each month.
• Cloud services, such as OneDrive and Dropbox, only bill for extra storage per month.

6. Profit-sharing pricing model

The profit-sharing model, meanwhile, depends on the deal between client and provider.

Unlike the incentive-based model, profit-sharing gives the provider a share of the client’s profit. As a result, it rewards strong work that drives a good outcome.

So this model takes the partnership to a higher level. Because of this, both sides collaborate more and solve problems faster for a smoother workflow.

7. Incentive-based pricing model

On top of the usual price, clients may add a bonus or commission to lift performance.

The incentive-based model often fits seasonal accounts and extra services. For example, it suits 24/7 lines and after-hours support.

Example

• Outbound lead generation teams get a bonus when they beat their quota by up to 20%.
• Sales teams earn a monthly or quarterly bonus for every deal they close.

8. Shared risk-reward pricing model

Like the incentive-based model, the shared risk-reward model sits on top of the flat rate. However, here both sides share the risks and the gains of the work.

You can also pair it with the T&M, FP, or profit-sharing models. In addition, Gartner notes that giving the partner clear responsibility helps lower the risk of new tools, processes, or models. As a result, both the provider and the client come out ahead.

How to choose the right outsourcing pricing model

No single model fits every case. So weigh your goals, your budget, and your need for control first.

For steady, well-defined work, a fixed price model keeps costs clear. Meanwhile, for changing IT projects, the time and materials model gives you room to flex. For long partnerships, profit-sharing or shared risk-reward can align both sides. Finally, review the deal often, since the best outsourcing pricing model can shift as your needs grow.

Frequently asked questions about outsourcing pricing models

What is the most common outsourcing pricing model?

The fixed price and staffing models are the most common. Both give clients clear, steady costs. As a result, they are easy to budget for.

Which outsourcing pricing model is cheapest?

It depends on your volume. For low usage, consumption-based pricing often costs less. However, for steady work, a fixed price can save more over time.

Can you combine outsourcing pricing models?

Yes. For example, shared risk-reward can pair with T&M, fixed price, or profit-sharing. So you can match the deal to the project.

What is the difference between fixed price and cost-plus?

A fixed price stays the same no matter the spend. Meanwhile, cost-plus bills the real expenses and adds a set profit margin.

Key takeaways

• There are eight main outsourcing pricing models, from staffing to shared risk-reward.
• Fixed models keep costs steady, while usage and results models flex over time.
• You can mix models to balance cost, control, and shared risk.
• The best outsourcing pricing model depends on your goals, budget, and project type.
• Review the model often, since your needs will change as you grow.