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What is the role of KPI & SLAs in BPO?
In the world of business process outsourcing (BPO), understanding and effectively implementing key performance indicators (KPIs) and service level agreements (SLAs) are vital for success. It is crucial to recognize that while there may be some overlap, KPIs and SLAs serve different purposes and carry distinct significance in the BPO industry. This article delves into the differences between KPIs and SLAs in BPO and explore their practical applications in driving business growth and ensuring operational excellence.
Understanding more of the Service Level Agreement
To start, what is a Service Level Agreement (SLA)?
It is a term not to be confused with KPI, although they both serve to improve performance.
An SLA is an agreement between an internal or external service provider that outlines what you will receive and what you expect from us.
There are three different categories of service-level agreements:
- Service-based: The terms of service customers can expect are similar for all customers on a service-based service level agreement. In this case, everyone working with a service provider receives identical terms. The SLA between you and your mobile service provider would fall into this category.
- Customer-based: A more customized service level agreement is customer-based. This SLA outlines a detailed relationship between a vendor and a customer and is likely not a one-size-fits-all deal.
- Multi-level: This category of SLA agreement splits into different levels to address a different set of customers using the same service.
With SLA, the service provider and the customer would regularly assess, communicate, and adjust actions to adhere to the agreement.
SLA may be a part of a legal contract. However, an agreement isn’t entirely about SLAs, as arrangements can be finalized without them.
What are the SLA components of Magellan Solutions and companies outsourcing to the Philippines?
While the exact components will vary based on organization and industry, SLAs are relevant in almost any business relationship.
In general, most of our SLAs include:
Service expected from BPOs
This lists Magellan Solutions’ exact services that will set the standards of the deliverables.
This way, any miscommunication or confusion is avoided at the onset. The hiring company has a clear set of guidelines for what to expect from the partnership.
Responsibility of both parties
Related to the first component, our responsibilities and yours must be communicated in the agreement.
We must be aware of what we expect from one another so that no one feels taken advantage of.
Delivery timetable
A definite time element must also be agreed upon.
For example, what is the expected timeframe for the customer to receive an answer if an email is obtained from a customer? If customer service is through the phone, how fast should an incoming call be picked up?
Handling disputes
There must also be an agreed outline or procedure if any disagreement arises.
There may not be clear-cut guidelines, as disagreements can vary depending on the situation. However, they can give you and us assurance and direction on how to resolve a conflict.
Corresponding consequences if service expectations are not met
Setting a defined penalty if service levels are unmet assures you will get quality service from Magellan Solutions.
At the same time, we set a goal for the quality of service we provide and a bar for us to achieve.
Payment terms
The payment terms we agreed upon clearly delineate when to expect payment and the repercussions. This is only if payment is not made or received on time.
KPIs are just as crucial as SLAs for the Business Process Outsourcing Industry in the Philippines.
In the world of marketing, we have KPIs for just about everything. We’ve got advertising KPIs, email marketing KPIs, content marketing KPIs, and more.
These metrics tell you how well your marketing efforts are working and what results they’re producing. They can also tell you where your marketing strategy could work.
Revenue per client/member (RPC)
RPC is the most common, and probably the easiest, KPI to track.
This is a measure of productivity.
We calculate this as follows:
RPC = annual revenue divided by the number of clients
For example, you generate $300,000 annually and 300 clients. Your RPC, then, is $1,000—roughly the industry average.
Besides access to classes and membership dues, what else can you offer for sale to your clients? What do they want? What complementary product or service would enhance enjoyment without seeming too aggressive?
Magellan Solutions guarantees that we will keep track of this regularly and update you.
Average Class Attendance (ACA)
Another popular KPI is Average Class Attendance (ACA). If classes are full or nearly so, it indicates a highly desired category and, theoretically, a profitable course.
Some classes are not quite as complete at the other end of the spectrum. It’s incumbent on the owner to find out why. Often it is an elusive answer.
Thus, Magellan Solutions helps you identify the difference between:
- A bad class
- A bad instructor
- A bad day or time
Client Retention Rate (CRR)
Retention is the percentage of clients you retain. This is critical to long-term profitability.
In many ways, it’s the most important KPI of all. It measures how well you’re delivering on your brand promise.
The typical CRR for the studio industry is roughly 72%. So, what do you do to increase that number?
At Magellan Solutions, we help focus on marketing strategies, tactics, messaging, time, expenditure, and ongoing sales efforts.
Furthermore, we also retain your clients by:
- Deliver what you promised.
- Ensure those working in your studio (whether employees or independent contractors) have embraced your vision.
- Understand why clients are leaving. Do exit interviews. Let them know you value their opinion.
Profit Margin (PM)
What does it mean if it costs you more to generate the revenue than the revenue you generate? It only means that it’s a harmful PM.
Your business is not long for this world unless you’re incredibly well-financed and have deep pockets.
If not, Magellan Solutions helps you identify the best place and how you’re spending your money.
Where is your money going? Are there any expenses that are beyond what is manageable? Can you distinguish between necessary and unnecessary costs? What costs contribute to revenue generation?
And don’t overlook the revenue side of the coin. Are you charging enough for this or for that? Does your pricing model need revision? Are your programs stale?
Average Daily Attendance (ADA)
It’s a simple KPI but one that can get blurry.
Is your studio full of Class Passers who pay next to nothing and have no intention of ever joining your studio or paying the total price for a class? Suitable for Average Daily Attendance. But not so much for PM or CRC.
Magellan Solutions offers different methods to achieve your ADA goal.
Give away free promo items, run special promotions, bring a friend, special this, or that are all ideas.
But be careful. While ADA is valid as a marketing strategy, ensure a sales acquisition strategy supports it.
Even Good Metrics Can Become Useless
Indeed, everything stated above gives you an insight into why you should have KPIs and SLAs.
After working for almost two decades in the business process outsourcing industry in the Philippines, Magellan Solutions found ways to avoid mishaps with these metrics.
Useless KPIs
KPIs are a great advantage because you get to monitor with us how your business is progressing directly.
However, sometimes, KPIs become a weak point in the business. Some of the scenarios are:
| Metrics you can directly manipulate | Even if you are not malicious, it can be challenging to resist manipulating your KPIs to make you and your company look better.
For example, if a KPI for a sales organization is the number of phone calls, they can start making dozens of meaningless phone calls, which have no chance of converting to make that KPI look better. |
| Too narrow | If you are a restaurant chain, you will not choose a single location to measure the health of your entire business.
KPIs that track only a small part of your business can give you a distorted view of the overall health. |
| Lagging indicators | Metrics that do not reflect changes in the business until days or weeks have passed are not useful KPIs because it will be too late before you know what is happening. |
On the other hand, SLAs are not a critical motivating factor. In some cases, SLAs are even worthless.
Reasons for Useless SLAs
From a provider’s perspective, SLAs are not a critical motivating factor. In some cases, SLAs are even worthless.
Some of the reasons that make them useless are:
| Low Credits | SLA financial or service credits rarely cover your losses.
With many IT services and hosting in particular, simply covering a portion of the underlying IT costs rarely accounts for lost revenue. Understanding how SLAs are not intended to compensate for lost revenue is essential. Some people turn to their SLAs for relief after an outage. Unfortunately, the money the SLA offers is more of an insult than a help. |
| Uptimes Guarantees have no guarantee. | Other providers offer 100% uptime guarantees.
However, you will soon discover that SLA credits do not kick in until after 30 minutes or more of downtime. This is a standard marketing tactic wherein you have a guarantee of 100%. However, you may not be able to claim any SLA benefits, as small as they are, until services drop below much lower levels. |
| Ambiguous SLAs | Too often, the terms are confusing and ambiguous and do not address your concerns.
Companies, including ours, will guarantee response times but not resolution times. Response time and resolution have an exact meaning to us as a service provider but may not be as clear to our clients. |
KPI & SLA Success Stories of the Top BPO Companies In the Philippines
Failing to meet a KPI is not a breach of contract.
Instead, KPIs serve as navigational tools. It keeps BPO providers on track to meet defined SLA objectives.
Some of the issues we have solved below prove how KPI and SLA are necessary for BPO companies in the Philippines.
KPI |
SLA |
|
Customer/client |
A leading IT services company’s BPO division | UAE-based healthcare services company |
Customer challenge |
Several difficulties in processing mail order fulfillment for millions of orders each month. | Their BPO division handles millions of orders monthly, but the client was unhappy with their process.
Customer satisfaction surveys did not provide the desirable responses. |
Magellan Solutions challenge |
|
|
How we handled the case |
Magellan Solutions helped the company design a unique BPO platform for mail order processing.
We set up a special team, the members of which had expertise in Oracle DBA, BPO platforms, and operating systems. Furthermore, a unique support operations center was also established, equipped with voice/email/internet facilities, including remote access support, which helped considerably reduce the turnaround time. |
Magellan Solutions was able to provide the following:
|
Result |
Several performance-related issues faced by the company earlier were resolved by Magellan Solutions.
This augmented the company’s productivity significantly. |
Our client was satisfied and pleased with our value-added services.
Apart from meeting the client’s objectives, we also resolved several performance & product-related issues that the client’s company faced earlier, which significantly augmented the company’s productivity. |
The business process outsourcing industry in the Philippines offers nothing but the best!
Whether you are negotiating SLAs into a new contract or reporting KPIs during a quarterly business review, reporting meaningful data is crucial.
Data helps us make better-informed business decisions and avoid costly mistakes. But everything comes with a cost. Although much can be automated, some effort is always involved with tracking and reporting data.
Make sure to define meaningful metrics that you want to track.
Avoid “vanity metrics,” whose only purpose is to show off how much data you have. Those only lead to information overload.
This is why KPIs are called key performance indicators (KPIs). As the name suggests, they should indicate critical information about your performance and provide insight into how it could be improved.
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