CustomerServ Blog

The Dreaded PFP Model

January 14, 2016 by Nick Jiwa

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Let’s get right to the point: PFP (Pay for Performance) is one of the most polarizing acronyms in the contact center industry. PFP pricing models come in many different forms, ranging across all outsourcing disciplines including inbound, outbound, non-voice and beyond. Risk sharing in outsourcing contracts is a good thing. However, I’m not in favor of PFP models that put most (if not all) of the risk on the outsourcer.

Often times, one-sided PFP models coincide with unusually challenging “vendor” management practices by the client. If you combine an unworkable pricing model with a difficult client, you know this is an unfortunate recipe.

Recently a contact center partner of ours severed a relationship with a Fortune 500 company because the PFP model and associated "vendor management" style simply did not work. In my postmortem, I learned this same client has a large "graveyard" of outsourcers who made a valiant attempt but couldn’t make the program work either.

This particular client talks of “partnership” but doesn’t practice it. To some effect, the client views outsourcers as dispensable. For instance, consider an outsourcer with very high agent attrition. That’s a red flag, right? This points to the outsourcer’s hiring and agent development practices among other issues. Well, the same holds true of clients who turnover outsourcers at an alarmingly high rate. If a client has high “outsourcer” attrition then something is clearly wrong with the client’s program and management style.

Upon further examination of this particular client's PFP model, here's where it all went wrong:

- The PFP rate structure was below the industry average cost-to-acquire for similar products and services
- The client didn’t quite understand the science behind data analytics
- Frequent claims of "other vendors hitting goal" but no transparent head-to-head comparatives
- The client did not allow for collaboration or idea sharing between the outsourcers
- Our outsourcer was never visited on-site by the primary client contact—this remains a head-scratcher

Put all that together and you’ve got an untenable situation, invariably resulting in the all too famous blame game directed at the outsourcer. That being said, I am not defending outsourcers outright because they’re human and, therefore, not infallible.

But, if you set them up to fail, they probably will.

All of this undue stress based on a questionable financial model is usually the result of faulty management practices combined with:

- Underestimating acquisition costs
- Overestimating revenue & sales targets
- Unattainable commitments made to senior leadership

When the program doesn’t perform, the heat is on from above, putting pressure on the client’s frontline teams. Ultimately, on the outsourcer who will bear the brunt of chastisement. In my experience, elite outsourcers won't put up with this — and they shouldn't. By elite, I mean bonafide contact center outsourcing companies with a value proposition that is in high demand. Not outsourcers who are desperate to fill empty seats.

In a previous article I talked about clients wanting their business to be desirable. Regardless of the size of the client logo, if you treat outsourcers this way, word will get around. These actions effectively damage reputations as a client in the contact center industry. This will undoubtedly turn away prospective high quality and top performing outsourcers from doing business with you.

So, what’s the solution? In order for PFP programs to work, particularly in telesales, clients must consider the following:

- Set realistic and attainable performance goals
- Be open to hybrid pricing models combining fixed and variable components
- Be transparent about everything, especially head to head comparatives
- Be very scientific with your customer data and utilize proper analytics
- Participate on-site by delivering training, do focus groups and build chemistry

Doug Herring of Invenio Solutions has an interesting perspective on the subject -- “As the former head of telesales for a major cable company, I’ve seen all forms of hybrid and PFP models and I’ve worked with many outsourcers over the years. I strongly prefer an hourly based model with performance stipulations tied to front and back-end results along with overall quality. And I agree 100% with Nick that you have to be engaged and collaborative with your outsourcing partner. That is the only way to sustain a long term relationship that drives positive results for both sides.”

An hourly paying client or PFP client or a hybrid (hourly + PFP) client all want the same thing—high quality sales at the lowest cost possible. You can’t achieve any of this without having a sound strategy, realistic expectations, and the right provider management style and culture— a culture that truly brings out the best in your outsourcing teams.

In the end, be a better partner to your outsourcers and your PFP model might have a greater chance of succeeding.