With issues like changing legislation, compliance, extensive vendor and SOW engagement management impacting the use of non-employees, it requires more resources than most human resources or procurement teams can handle to properly manage a contingent workforce program.According to the Bureau of Labor Statistics, 5.9 million people hold contingent jobs. Consequently, it’s not a great surprise that companies are scrambling to figure out how to manage this growing employee population. According to Deloitte’s 2018 Global Human Capital Trends study, companies estimate 30% of their procurement spend goes towards contingent workers
Because of this, many companies turn to a Managed Service Provider (MSP) to manage their contingent workforce program. But what does that mean for your company as a whole? Not only will a provider help you manage all the risks of running a program that has been steadily increasing in size, but the ultimate cost savings of streamlining your program will benefit your company in the long run.
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When you are making a decision to outsource your contingent workforce management, the first driving force for most (if not all!) companies is cost. It is always top-of-mind for the C-Suite when you are providing a business case to outsource the program. To help you understand the costs of outsourcing your contingent workforce program, first, you need to appreciate program pricing structures and then we can help you identify the ultimate cost savings.
Contingent workforce Management Fee Structure
To gain a better understanding of the pricing structure, you should first understand what costs are involved in outsourcing your program. This can include, but is not limited to, the following:
- General Program Management Costs
- Costs of Corporate Resources
- Implementation and Change Management Costs
- Communications, Consultations, Performance Measurement and Reporting Costs
- Systems Administration
- Training Costs
- Back Office Costs
- Overhead and Other Costs
- VMS Technology
- Costs of Other Technology (this is technology the provider may use to enhance offerings to the program)
Contingent Workforce Management Pricing Models
Now that you understand the fees behind the costs of outsourcing your program, let’s cover the most popular pricing structures for an MSP. This will give you a better understanding of your options to make the best decision that works for your individual needs.
Supplier-Funded Model
This is the most popular of the pricing models. A supplier-funded model means that their program is 100% supplier funded. Transaction fees will be charged to all suppliers to offset the costs of setting up, managing, and operating the Managed Services solution and VMS (Vendor Management System) technology. Companies like the idea of this model because it means less out-of-pocket spending. That means it’s an easier sell to the C-Suite if they don’t need to chase corporate-allocated funds to invest in the program.
The only hesitancy clients sometimes have with this program is the risk of losing suppliers who may not want to pay the fees that are associated with implementing this solution. Will they tolerate a fee? In reality, a vast majority of Fortune 500 companies use this fee structure, so most suppliers are already likely paying this fee for another client. Although every supplier’s reaction and situation is different, chances are that supplier won’t back out of your program based on the decision to implement this fee structure. There is a 99% supplier adoption rate into the price model when it is supplier-funded. A supplier-funded model also promotes focus and accountability across the supply chain.
Client-Funded Model
In this model, the purchasing company is covering 100% of the costs of the VMS and Managed Services costs. All transaction fees will be charged to the client, and suppliers do not realize the impact of the typical fees. The hesitancy with this model is obvious, the cost is coming out of your own pocket. But keep in mind, in the long run, the cost savings you incur investing in a good Managed Services Program should ultimately offset those costs.
Partially Client-Funded Model
In this model, a combination of the above options can be employed, which allows for flexibility to provide the right combination of pricing models that ensure predictability of costs. For example, in some instances, the clients may pay for the VMS, but the suppliers fund the MSP. This can be beneficial for a more customizable option to fit the needs of you and your suppliers.
Subscription Pricing Model
This pricing model means your company or suppliers are paying a lump sum based on the overall spend of the program. You will be invoiced on an up front, quarterly, or even annual basis.
Every company has unique needs and a good MSP will provide a customizable pricing structure based on those needs. Although these are just general guidelines for how popular pricing structures work, the provider will work with you to get the most cost-efficient pricing structure for your program’s individual needs. Pricing can vary company-to-company based upon specific requirements and program parameters. This overview will help you get a broader understanding of how the pricing works, so you can be a little more confident when talking to your C-Suite about the value that outsourcing can provide for your company.
About the Author: Erin Fortunato serves as Vice President, Enterprise Sales and is responsible for new MSP account development. Erin holds a degree in Mathematics and has been working in the staffing industry for 23 years. Prior to this role, Erin spent most of her career in strategic global and national account
