Invoicing and Types of Contracts

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The legal backbone of any BPO relationship with its clients is the MSA (Master Services Agreement). This huge contract dictates the rules of the game for each party, the Pricing model, and what happens if the BPO fails to comply with performance expectations.

Let's review two additional concepts to build on top of what we learned in the Pricing Model section, which add a fundamental difference in how contracts are written and have an impact on other areas, such as service level and revenue:

Full Time Equivalents (FTE)

In this model, the Client buys "staffing capacity" and pays a fixed monthly fee for the number of staff needed. For example, a client can say, "I need 50 people working 40 hours a week to handle my interaction volume during my hours of operation."

It is important to note that an FTE is not converted directly into an agent; it is not a 1:1 ratio, and some clients tend to use the wording "I need 50 FTE" as the equivalent of "I need 50 agents". Let's see why with an example:

• An agent is hired to work 40 hours a week, 8 hours per day.
• That same agent will need to do other things besides taking interactions:
• Taking lunch (30 or 60 unpaid minutes per day).
• Going to breaks (30 paid combined minutes per day - assuming two breaks of 15 minutes each).
• Attending team meetings.
• Receiving coaching.
• Complete courses and training.
• The hours of operation of the company, let´s say TechGiant, are from 8:00 A.M. to 5:00 P.M, Monday to Friday.

In theory, this arrangement should be enough for the agent to handle the calls. But in a closer inspection:

• What would happen to the customers who contact the company while the agent is in another activity or AUX?
• What happens if the agent gets sick or resigns?

If the agent is hired to work 40 hours a week, but in reality only works 30 hours (this is discounting breaks and other activities out of the 40 hours), that agent is counted as 0.75 FTE (FTE = Actual hours worked ÷ Full-time hours). We are clearly missing people.

This means that, in the previous example, we need at least two agents to cover the operation on a day-to-day basis. However, this will also depend on the volume of interactions expected per day.

Let's follow the same example to understand how we should calculate it, including everything we have learned so far:

• We already established the number of hours required for an agent to work every week: 40 hours.
• We will assume the agent actually works 30 hours a week (this is discounting breaks and other activities out of the 40 hours).
• We get the following information from the client:
• They are expecting a volume of 100 contacts every hour.
• The occupancy goal is 80%.
• The AHT is around 6 minutes.
• Now let's do some math, step by step:
• Workload = 100 calls x 6 minutes = 600 minutes of work every hour.
• Agents needed = 600 minutes ÷ 60 minutes/hour = 10 agents.
• FTE = 10 agents x 0.80 occupancy = 12.5 FTE
• The operation will need 13 agents to handle the volume comfortably.

In the previous example, we did not cover other factors that might have an impact on the final calculation, such as shrinkage, service levels, abandonment rates, and response thresholds.

Productive Hours

In this model, the Client only pays for "work done", focusing on the actual productive hours in which an agent is handling interactions. The client usually does not pay for lunch, breaks, training, or coaching in this scenario.

In order to comply with performance expectations and profitability, the BPO must be hyper-efficient. If an agent spends too much time in the bathroom in a Personal or Break AUX (Shrinkage), not following the schedule (Adherence), the BPO is paying that agent's salary, but the Client is not paying the BPO.

Let's use a similar example as before:

• An agent works 8 hours a day. This is 480 minutes (not counting the unpaid lunch time).
• The agent attends a team meeting that lasts 30 minutes.
• The agent takes two breaks of 15 minutes each (30 minutes total).
• Productive hours = 480 minutes - 30 minutes - 30 minutes =  420 minutes = 7 hours.
• The BPO will:
• Pay the agent 8 hours.
• Send an invoice to the client for 7 hours.
• In this scenario, the BPO is absorbing 1 hour of the cost of the agent.

In this type of model, it is a priority that all non-essential activities that take agents out of handling interactions are kept to a minimum.

At the beginning of this section, we also mentioned that the agreement states what the BPO needs to comply with (targets and goals, service level, CSAT, etc), and what happens if the BPO does or does not. Let's introduce two new concepts:

Bonuses

This is extra money paid on top of the invoice if the BPO performs exceptionally well.

• Example: "If you achieve 95% CSAT for three months in a row, we will pay a 5% bonus on the total invoice."

Malus / Penalty

This is money deducted (taken away) from the invoice if the BPO fails to hit the targets.

• Example: "For every day you miss the Service Level (80/20), we will deduct $500."

This is why Supervisors are so strict with providing Coaching and Feedback regularly to ensure performance is always above the expected requirements. A "Malus" eats directly into the BPO's profit margin. If penalties are too high, the BPO might actually lose money on the contract or lose the entire business with the client.

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