Managing Customer Call Center Costs in an Uncertain Economy


Today’s call center mantra is, “Do more with what you have.” In this uncertain economy there is even more pressure to perform miracles by increasing productivity while lowering costs, yet still continuing to provide expected customer service levels. In our consulting engagements with direct call centers and through our F. Curtis Barry & Company Best Practice ShareGroups, we’ve been able to observe the latest call center trends and how managers are dealing with them. Here are some of the major issues that direct customer call centers face, as they examine their costs and try to reduce them without major disruptions to customer service. 

Read More: 70+ Ways to Reduce Costs, Increase Productivity and Improve Customer  Service

Higher Labor and Benefit Costs

There has been a tremendous acceleration in hourly labor rates over the past five years. In addition, our industry is in competition with call center jobs in banks and other financial services, which often pay more and have stronger benefits. As recently as 2013, many of our clients had average pay rates in the $8.30 to $9.50 range, with benefits adding 15% to 20%. Today those same clients are paying an average of $11.25 to $13.00 per hour. Some of those in urban areas are faced with $16.00 to $17.00 per hour, with added benefits in the 25%-30% range. However, there are still fortunate direct call centers with labor rates of $7.50 to $9.00 in smaller cities and rural areas.

A number of our clients have outsourced 100% of their inbound calls to either domestic or offshore providers.  Several of these clients have high average order values or a customer base that expects a high level of customer service.  When weighing the options of whether or not to use an outsource provider, keep in mind other elements (along with costs) to factor in to the equation.  Will they go the extra mile to serve your customer's needs?  Are your products technical or specialized requiring specialized knowledge?  How will the training be accomplished?  How will the culture of your company be conveyed to the customer through the outsource provider?  There are call center outsource providers have been providing good service with a variable cost for a number of years without dedicated reps; just make certain that it makes sense for your business.

Even though we’ve all heard the stories about, or had personal issues with, turning our businesses over to offshore centers, many of our clients have had reasonably good results with offshore outsourcing, and their costs overall have been lower than domestic outsourcing.  But again, outsourcing isn’t just about costs.

When it comes to offshore outsourcing, we’ve all heard the stories or had personal issues with turning our businesses over to offshore call centers.  Many of our clients have had reasonably good results and the costs overall have been lower than domestic outsourcing and in some cases internal costs.

As you look at offshore outsourcing, including Canadian call centers, you need to factor into the decision some realities:

  • Labor chases the lowest cost.  As call centers and other jobs come to less developed nations, eventually their standard of living and wages increase and they loose their cost advantage.  First, it was India, and then the Philippians, now offshore companies are talking Vietnam.  The same thing has been happening for years with manufacturing.  To keep getting the lowest cost per minute and per order are you really going to continue to chase the low cost producer each year?  We understand the need to reduce your costs, but what about the difficulties in trying to teach another culture about your products, service levels expected and your business' culture? 
  • The strength of the dollar greatly affects your costs.  A good example is Canada.  Several years ago, Canada was a great resource for call centers because of both lower costs and similar cultures. But as the strength of the dollar weakened, Canada lost its cost advantage.
  • Diminished savings in the second and subsequent years.  Some of our clients’ have experienced the low advertised cost per minute in the first year of offshore outsourcing. However, several of our clients have seen cost increases as much as 15% in second year.
  • Find the right alternative that works for your company. One of our largest clients implemented an offshore call center strategy in a unique way.  They went to the Philippines, recruited management and built their own call center to take advantage of the low labor rates.  They are very pleased with the quality of the workforce and their willingness to handle American customers and culture as well as reduce their costs.

Revenue Center Versus Cost Center
With these cost pressures and the tough business climate many centers are focusing on being a revenue center rather than just a cost center.  How are they doing this?

  • Upsell and cross sell programs.  When effective these programs increase the average order as much as 3% to 5%.  As many as 20% of the customers are willing to listen to the upsell offer.
  • Outbound selling.  For B to B direct companies some are analyzing their database for customer RFM, and setting up teams of sales people that can act as a single point of contact for the largest or highest potential accounts. Some of our B to C clients call customers with recommendations of products available that compliment other products that customers have recently bought; or they call customers once a backordered product is received in the warehouse, even though the customer cancelled their order already.  

The Metrics
Here are a few call center metrics to keep your finger on as you balance costs with service levels.

  • Call center cost per order. In the most efficient direct businesses the total cost per order (combination of call center and warehouse elements) varies between $8 and $13.  This is a fully loaded cost per order (not including shipping costs) to capture and ship a customer's order.  Call center and warehouse expenses are split 50%-50% for the total cost per order. The total call center cost includes items like direct and indirect labor (combined are 50% of total call center costs), occupancy, telecom expenses, and training.  The total warehouse costs include direct and indirect labor (combined are 50% of the total warehouse costs), occupancy and packaging materials like corrugated and dunnage.
  • Cost per transaction. Seemingly forever, call centers have been tracking cost per call and cost per phone order.  In recent years, cost per transaction has surfaced.  As orders shifted from phone to e-commerce, management realized what has always been true, which is that the call center handles many different types of transactions in addition to calls.  These often include but not limited to mail and fax orders (often major percentages of orders in B to B, corporate gifts, horticulture, etc.); document scanning; payment processing; order entry; customer service; and resolving credit authorization and settlements.  The list varies by company and what management deems is the call center’s responsibility.  The point here is that if you only focus on cost per phone order - and as e-commerce grows and your center handles a wide variety of transactions - you miss the full picture of what your call center is handling. These transactions will have a wide variety of time required to complete, but establish an appropriate cost by category of transaction.
  • Labor cost per minute. Another cost to measure, which parallels outsourcing’s charges, is to determine what your labor cost per minute is.  Develop weekly reporting which breaks down your indirect (supervisor and overhead) labor from the direct labor for order entry and customer service reps.  Calculate the cost per minute for indirect and direct labor.  The side bar Figure 1, shows 20 companies and how the total labor cost per minute and the total call center cost per order vary widely. When comparing your labor cost per minute to an outsource provider, domestic providers average $0.60 to $0.75 and offshore average $0.45 to $0.55. This type of analysis gives you a more accurate comparison against what an outsource vendor’s projected costs are.

As you can see, direct businesses have a wide range of costs.  Some of the variables are the availability and quality of labor in the market, urban or rural, size of company, etc.  With benchmarking in our ShareGroups we are able to get “behind the numbers” and understand these factors.

  • Attrition. Employee turnover in many call centers remains high - anywhere from 25% and up. Many are hovering around 40%-50%. In some unfortunate centers it may be as high as 90%-100%.  It’s surprising how many call centers don’t have an accurate attrition measurement or a program to reduce it where possible. 

Our experience is that turnover costs range from $3,000 to $10,000 in people, time, training, testing and the ramp-up to full production. Many studies are higher yet.  This does not include expenses for agencies, ads, etc. which must be added on.
A strategy to lower turnover costs includes:

  • Set up a system to track and calculate employee turnover monthly. 
  • Spend the time to research and answer the issues that are raised about turnover.
  • Establish an exit interview process to learn more about why people leave.
  • Look at the turnover by months and years of service. Are you seeing turnover with long term employees? New hires?
  • Calculate the cost of recruiting, training and losing an employee and get management to understand the reasons and the costs.
  • Set up a spreadsheet that will let you enter the monthly data and calculate the turnover and the cost to the company.
  • From there establish a plan of action for change. 

If you can get on top of your turnover, you can reduce costs and improve the morale.

  • Call abandonment rate. We all think of abandonment as a service level metric.  We find that good to excellent service levels are 3.5% or less.  Think for a minute about abandonment as being orders you never get-period.  What percent of your abandonment rate never calls back?  What percent are lost sales?  We find that many companies are trying to balance high service levels and the costs, again losing the full picture of what may be happening to their customers.

At-Home Agents
Over the recent years there has been a trend to have at-home agents, establishing a virtual call center that spans the country by a network. Who hasn’t had a highly qualified rep leave the company because of a spouse’s job change; or the commute to your center makes the job impractical.  Ideally, you’d like to keep this rep.  Maybe establishing an at-home agent program would work for both parties.  We caution you to do your due diligence. Here are some things to keep in mind:

  • The individual must be a self-starter and fully capable of high production with minimal supervision. 
  • Do they have a home environment that will work as a quiet home office? 
  • They must know your business and products inside-out. 
  • Today’s telecom technology and dedicated high speed phone is the easy part to get connectivity to your business' order management system. 
  • You need to define legally whether these at-home agents are considered contractors or employees and whether there are any paid benefits. 

Look at this option to be able to selectively hold reps and decrease your call center space and supervision as a benefit.

Unemployment and Your 4th Quarter Hiring
Recently, unemployment hit 5.7% nationally.  While this isn’t good for those unemployed, it may make things easier to recruit for businesses with 4th quarter peaks that are usually scrapping for call center reps. There may be skilled reps in your market that need that first or second source of income. 

Scheduling Practices
Planning and scheduling the right number of reps according to the call arrival times is critical to customer service as well as containing costs.  It is vital to understand the forecast from marketing and then meld it with your agent requirements. Whether you use spreadsheets or a specialized workforce management system, use these order assumptions to project the number of reps needed per hour.  Can you adopt a flex schedule concept to keep the head count in line?  Equally important is to maintain schedule adherence. Do an analysis after the fact, measure the results.  You'll want to answer the questions: Did the schedule work out?  Was there adequate supervision? Did the reps work the schedule produced?  In some companies, this may not be a full time job.  But it is critical to having a good analyst doing your scheduling and adjusting as needed. 

Many trends and factors are driving the management of call centers today, but in the current economy, no element is more important or pervasive than costs. But it is paramount to maintain competitive customer service.  Indirect and direct labor accounts for more than 50% of the typical cost per order. And as e-commerce becomes a higher percentage of the total orders, call centers will have to find ways to adapt to this shift. Measuring your true internal costs, while remaining open to different strategies to contain and lower them—can help you maintain a high level of customer satisfaction and weather these difficult times.

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