When it comes to hiring offshore, choosing the right pricing model can significantly impact the success of your business operations overseas. Two approaches you can choose from are the fixed cost and cost-plus pricing models. Each has its pros and cons, but understanding these differences will help you make an informed decision.

The fixed cost model

The fixed cost model charges businesses a set fee per employee for a designated period of time (i.e., weekly, bi-weekly, monthly, and so on). At first glance, it appears straightforward—businesses pay a predictable amount, simplifying budget planning. This makes it attractive to companies seeking a hassle-free approach to offshore hiring.

However, the simplicity of fixed cost pricing can conceal significant pitfalls. A lack of transparency is one of the biggest drawbacks. Businesses rarely know how much of the fixed fee actually goes to the employee and how much is retained by the agency. This opacity can make it difficult to build trust and establish a direct relationship with your offshore team.

Additionally, agencies using the fixed cost model often restrict businesses from directly communicating with employees or candidates. These barriers prevent discussions about salaries, incentives, and employee concerns. This can lead to a lack of control and hinder efforts to motivate and retain employees. 

Moreover, the fixed cost often includes a buffer for unforeseen expenses, meaning businesses may end up overpaying for costs that never materialize.

The cost-plus model

The cost-plus model, on the other hand, promotes transparency and collaboration. With this approach, businesses are billed directly for employee salaries and other related expenses, along with a service fee for the agency. This ensures that employees receive fair pay without the agency taking a cut from their wages.

One of the biggest advantages of cost-plus pricing is the open communication it fosters between businesses and employees. Without restrictions, businesses can discuss salaries, incentives, and other team needs freely, leading to stronger relationships and a motivated workforce. Employees feel valued and fairly compensated, reducing turnover and the cycle of job-hopping for better pay.

Cost-plus pricing also addresses unforeseen costs in a transparent manner. Businesses are billed only when these costs arise, rather than pre-paying for hypothetical scenarios as in the fixed cost model. This clarity gives businesses greater control over their spending and allows them to adjust as needed.

Why cost-pus is the better choice

While the fixed cost model might seem simpler upfront, its hidden complexities and lack of transparency can create significant challenges for businesses and employees alike. The cost-plus model, by contrast, aligns the interests of the business, the agency, and the employee. This alignment fosters a collaborative environment where everyone works together toward shared success.

For businesses looking to establish long-term success in offshore hiring, cost-plus is clearly the superior choice.

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