Outsourcing to the Philippines has become a strategic move for many global businesses due to the region’s cost-effective services and high-quality workforce. Understanding the detailed costs associated with outsourcing is essential for companies aiming to optimize their operational budgets and improve service delivery.
Standard Outsourcing Rates in the Philippines
The Philippines, known for its robust BPO (Business Process Outsourcing) industry, offers a wide range of services, including call centers, data entry, and more advanced roles like software development and administrative support.
The average cost of outsourcing varies depending on the type of service. For example, entry-level positions in customer service or data entry might command lower monthly salaries than specialized IT services. However, the rates remain competitive globally, particularly when compared to the cost of similar services in countries like the United States or the United Kingdom.
Pricing Models in Outsourcing
There are different pricing models for outsourcing:
- Hourly Rate: This model is ideal for companies requiring short-term or flexible services. Hourly rates typically range from $8 to $45, depending on the complexity of the task.
- Project-based Pricing: For defined tasks or projects, outsourcing companies often offer project-based rates.
- Full-time Equivalent (FTE): This model provides businesses with dedicated employees for a fixed monthly or annual rate. This is often used for long-term tasks such as customer support or administrative roles.
Here’s a table displaying the average outsourcing rates in the Philippines by job function; costs differ based on the industry and job function:
| Job Funtion | Price per Hour (USD) |
|---|---|
| Customer Service | $8 – $12 |
| Data Entry | $6 – $10 |
| IT Support | $15 – $25 |
| Software Development | $15 – $45 |
| Graphic Design | $10 – $20 |
| Digital Marketing | $15 – $30 |
| Administrative Support | $8 – $15 |
| Human Resources | $10 – $18 |
These rates are approximate and can vary depending on the specific requirements of the service, the skill level of the staff, and the outsourcing company’s pricing structure.
How To Calculate Outsourcing Costs and Savings
1. Identify the Business Function To Outsource
First, determine which aspects of your business will benefit most from outsourcing. Common functions include customer service, IT support, and financial services. The choice should align with strategic goals and the potential for cost savings and quality improvement.
2. Find Total In-house Cost
Calculate the total expense of managing the service domestically. This calculation should include direct and indirect costs such as employee wages, benefits, training, infrastructure, and technology.
Here’s a table with a sample breakdown of the potential costs of keeping a business process in-house versus outsourcing.
| Category | Cost (In-house) | Cost Saved by Outsourcing |
|---|---|---|
| Compensation | $300,000 | $250,000 |
| Rent | $200,000 | $150,000 |
| Equipment and furniture | $100,000 | $100,000 |
| Software | $50,000 | $40,000 |
| Supplies | $30,000 | $30,000 |
| Utilities | $20,000 | $20,000 |
| Total | $700,000 | $590,000 |
These figures are illustrative and show how outsourcing can reduce costs across various categories commonly associated with maintaining processes in-house. Each category shows significant potential for savings when outsourced, factoring in reduced needs for physical infrastructure, direct employee costs, and associated operational expenses.
In-depth Cost Comparison
Outsourcing offers significant savings compared to in-house staffing. For example, customer service roles outsourced to the Philippines typically range between $8 to $12 per hour, while in-house employees in Western countries can cost $20 to $30 per hour or more. A clear cost comparison reveals that outsourcing customer service, data entry, or IT support roles can lead to up to 70% savings in operational costs.
Take into consideration costs like:
- In-house Compensation: $50,000 per year for an in-house employee
- Outsourcing Compensation: $15,000 per year for an outsourced employee
By outsourcing, a company can save around $35,000 per year per employee.
3. Calculate the Total Cost of Outsourcing
This includes the outsourcing rates charged by Filipino outsourcing companies, which encompass monthly salaries of Filipino workers, administrative fees, and any incidental costs related to transitioning services abroad.
| Category | Cost |
|---|---|
| Contractor bid price | $250,000 |
| Contract administration | $10,000 |
| Transition costs | |
| – Unemployment compensations | $5,000 |
| – Severance pay | $10,000 |
| – Early termination fees | $10,000 |
| Total | $285,000 |
4. Subtract Outsourcing Costs from In-house Costs To Get Savings
The difference between what it costs to perform these functions in-house versus outsourcing them to the Philippines represents your direct financial savings. This number often convinces companies of the financial viability of outsourcing.
Cost Comparison Breakdown:
- Calculate Amount Saved from Outsourcing: Start with the in-house costs you save by outsourcing.
- Determine Total Price of Outsourcing: Include all outsourcing-related expenses.
- Compute Total Cost Savings: Subtract the total outsourcing cost from the amount saved.
For example:
- Amount Saved from Outsourcing: $590,000
- Total Price of Outsourcing: $285,000
- Total Cost Savings: $590,000 – $285,000 = $305,000
Thus, your total cost savings are $305,000. This detailed breakdown helps you understand the financial benefits of outsourcing compared to maintaining in-house operations.
What Are the Factors That Affect Outsourcing Rates in the Philippines?
Workforce Costs
The cost-effective nature of Filipino labor is partly due to the lower cost of living in the Philippines compared to many Western countries. This allows local BPO companies to offer competitive rates without compromising on quality. For instance, outsourcing customer service to the Philippines can significantly reduce your operational costs while maintaining high service standards.
Service Fees
These vary significantly based on the complexity of the tasks and the expertise required. For example, a basic customer service role might cost less than a technical support position that requires specific skills and certifications.
Government-mandated Benefits
Under the Philippine Labor Code, employers are required to provide certain benefits to their workers. However, in the case of outsourcing, your BPO partner typically covers these costs as part of their payroll responsibilities. It’s beneficial to discuss each specific benefit during a meeting with your outsourcing partner to understand the details better.
Night Differential
The Philippines operates in a different time zone than many Western countries (e.g., 15 hours ahead of Arizona and 12 hours ahead of Washington, D.C.). If you require your offshore team to align with your local work hours, they are entitled to night differential pay, which is at least 10% of their basic salary for hours worked during the nighttime period.
13th-month Payment
The 13th-month payment is required for all employees and is mandated by the Philippine Department of Labor and Employment. This bonus is equivalent to one-twelfth of an employee’s basic yearly salary. It is typically paid at the end of the calendar year, with the amount being prorated based on the date the employee started within the year.
Social Security
Both employer and employee contribute to social security, with the current rate set at 12% of the employee’s salary (8% contributed by the employer and 4% by the employee). These rates are scheduled to increase to 15% by 2025.
PhilHealth
Contributions to the Philippine Health Insurance Corporation (PhilHealth) are set at 3% of an employee’s basic salary as of 2020. Many organizations also choose to supplement this with private health insurance to provide broader coverage.
Pag-IBIG
The Home Development Mutual Fund, better known as Pag-IBIG, is a government program designed to provide Filipino workers with savings and loan options, primarily for housing. Employers are required to contribute 2% of an employee’s basic salary to Pag-IBIG, facilitating long-term savings and loan benefits for employees.
These costs are typically managed by the outsourcing provider, meaning businesses don’t need to handle these additional expenses directly.
Hidden Costs of Outsourcing
While outsourcing can offer considerable savings, it’s essential to account for potential hidden costs, such as:
- Transition Costs: These are one-time costs related to the initial setup, including training and legal fees.
- Communication Expenses: Managing an overseas team might increase communication costs, including project management tools or increased collaboration time.
Businesses should factor in these additional costs when calculating total savings.
Quality of Workforce and Time Zone Advantages
One of the Philippines’ strongest advantages is the high quality of its workforce. Filipino workers are known for their proficiency in English, cultural adaptability, and dedication to work. Additionally, the time zone difference can work in your favor, allowing businesses to provide 24/7 support without extra staffing costs.
The bottom line
Outsourcing rates in the Philippines are influenced by a variety of factors, from the type of service and the skill level of the workforce to regulatory requirements and the cost of living. For businesses looking to outsource, the Philippines offers a blend of affordability and quality that is hard to match. By understanding the components of outsourcing costs and the factors that influence these rates, companies can make informed decisions that lead to significant cost savings and efficiency improvements.
This comprehensive guide provides a clear pathway for businesses to understand and leverage the economic advantages of outsourcing to the Philippines. Whether it’s customer service, IT support, or any other function, the cost savings and operational efficiencies are compelling arguments for considering the Philippines as a top outsourcing destination.
Contact us today to learn how outsourcing to the Philippines can transform your business operations.
