Gainshare in outsourcing: pay a provider to cut your costs

Key takeaways

Gainshare outsourcing is a commercial arrangement in which the provider earns a share of the savings or improvements it delivers beyond an agreed baseline. It rewards the provider for making your process cheaper, which ordinary hourly pricing does not. It only works with a trusted baseline, a simple formula and savings both sides can verify.

• Gainshare: the provider keeps an agreed share of savings it creates.
• £10,000 each in our example of a £20,000 saving split 50/50.
• It needs a baseline both sides accept before work starts.
• Keep it as a small layer on top of normal pricing.

What is gainshare?

Gainshare is a contract mechanism under which a supplier and a client share the financial benefit of improvements the supplier makes. The client pays less than before, and the supplier receives a percentage of the difference. It aligns the provider's income with your cost falling.

• How BPO can help businesses reduce operational costs
• BPO pricing models explained

Why would you use it?

You would use it because standard pricing gives a provider no reason to shrink its own invoice. Paid per hour, it earns more when the work takes longer. Paid per contact, it earns more when customers contact you more. Gainshare gives it a reason to remove hours and contacts.

• Failure demand: the customer contacts you pay for twice
• Continuous improvement in outsourcing: savings past year one

How does it work in numbers?

Take an illustrative process with an agreed baseline cost of £100,000 a year. The provider proposes changes that bring the cost of delivering it to £80,000, a saving of £20,000. Under a 50/50 gainshare, you pay £80,000 plus £10,000, and your net saving is £10,000 a year.

The share normally applies for a fixed period, often one to two years, after which the full saving passes to you. Without the incentive, the £20,000 improvement might never have been proposed.

• Baseline: £100,000 a year.
• New cost of delivery: £80,000.
• Provider's share: £10,000.
• Your net saving: £10,000 a year, rising to £20,000 when the share ends.

• Run-rate savings vs one-off savings: count them correctly
• Cost baseline: measure today's cost before you change it

What conditions does it need?

Gainshare needs four conditions. Without them it produces arguments instead of savings.

• A baseline measured and signed off before the contract starts.
• A formula simple enough to explain in two sentences.
• Quality and service conditions, so savings cannot come from cutting corners.
• A rule for volume changes, so growth is not mistaken for inefficiency.

• Cost reduction KPIs: the numbers that prove savings are real
• BPO SLA examples you can adapt

What are the pitfalls?

The pitfalls are disputed baselines, gaming and complexity. A provider may inflate the starting figure to make later savings look larger. Savings may be claimed for changes you made yourself. And a formula with many adjustments costs more to administer than it yields. For small contracts, the administration can outweigh the benefit.

• Why outsourcing sometimes fails to save money
• BPO contract terms to check before signing

Is there a simpler alternative?

Yes. A small business can get most of the effect with a plain commitment: the provider proposes at least two costed improvements each quarter, and an agreed share of any resulting saving is paid as a one-off bonus. It keeps the incentive and drops the formula.

The UK government's Sourcing Playbook encourages payment mechanisms that reward the outcomes a buyer wants, and the same principle scales down.

• The quarterly business review with your outsourcing provider
• How to negotiate an outsourcing price without cutting quality

What does this look like in practice?

A pattern we see in long-running contracts: the provider's team knows exactly which steps are pointless, because they perform them every day. Nobody asks, and nothing in the contract rewards them for saying so. A modest reward for costed suggestions tends to release a list that has been sitting unspoken for a year.

• See client work
• BPO Solutions for UK businesses

Gainshare checklist

Agree these before signing.

• Baseline cost and method, signed by both sides.
• Share percentage and how long it lasts.
• Quality and service floor that must be met.
• How volume changes are treated.
• Who verifies the saving and how often.
• What counts as the provider's idea.

• Cost-effective or just cheap? How to judge outsourcing value
• A simple BPO governance model

Next step

Tell us what your outsourced or in-house process costs today and how it is priced. We will say whether a gainshare, a simpler improvement bonus or neither makes sense.