Keeping contact center costs in line

Oct 01, 2008 9:30 PM  By

Just about every business these days is challenged to “do more with what you have.” Contact centers seem to face even more pressure to perform miracles by increasing productivity while lowering costs, yet still continuing to provide expected customer service levels.

Worse yet, hourly labor rates have gone through the roof during the past five years. As recently as 2003, many of our clients had average pay rates in the $7.50 to $9 range, with benefits adding 15% to 20%.

Today those same clients pay an average of $10.50 to $13 per hour. Some of those in urban areas are faced with $16 to $17 per hour, with added benefits in the 25% to 30% range. Still other direct call centers in smaller cities and rural areas have labor rates of $7.50 to $9.

What’s a contact center to do? Let’s take a look at some of the major issues that direct call centers face, and how to examine and reduce costs without major disruptions to customer service.

Outsourcing


A number of our clients have outsourced all of their inbound calls to either domestic or offshore providers. Several of these clients have large 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, consider elements beyond costs. Will reps go the extra mile to serve your customers’ 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?

And if you look at offshore outsourcing — which does tend to offer lower costs than domestic outsourcing, and in some cases internal expenses — 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, their standard of living and wages eventually increase, and they lose their cost advantage. First it was India, and then the Philippines, now perhaps Vietnam. For the lowest cost per minute and per order, you may need to chase the low-cost producer each year, and it’s hard to teach another culture about your products, expected service levels and business culture.

The strength of the dollar greatly affects your costs


Canada was a great resource for call centers several years ago because of both lower costs and similar cultures. But as the U.S. dollar weakened against the Canadian dollar, 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. But several clients have also seen cost increases of as much as 15% in second year.

Revenue center vs. 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


Some business-to-business direct companies are analyzing their databases for customer RFM, and setting up teams of sales people who can act as single points of contact for the largest or highest potential accounts. Several of our business-to-consumer clients call customers with recommendations of products that complement items that customers have recently bought. Some even call customers once a backordered product comes in, even though the customer already canceled their order.

Here are a few call center metrics to keep in mind 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 from $8 to $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 such as direct and indirect labor (combined, they are 50% of total call center costs), occupancy, telecom expenses and training. The total warehouse costs include direct and indirect labor (combined, they are 50% of the total warehouse costs), occupancy and packaging materials like corrugated and dunnage.

Cost per transaction


Call centers have always tracked 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: that the call center handles many different types of transactions in addition to calls.

These often include 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.

So if you focus only on cost per phone order, you miss the full picture of what your call center handles. These transactions will vary in the time required to complete, but establish an appropriate cost by category of transaction.

Labor cost per minute


Another call center cost to measure, which parallels outsourcing’s charges, is your labor cost per minute. Develop weekly reporting that 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 chart below 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 an outsource vendor’s projected costs.

As you can see, direct businesses have a wide range of costs. Variables include the availability and quality of labor in the market, urban or rural, and size of company.

Attrition


Employee turnover in many call centers remains high — from 25% and up. Many are hovering around 40% to 50%. In some unfortunate centers it may be as high as 90% to 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. This does not include expenses for agencies, ads and so on, which must be factored in.

To lower turnover costs, start by setting up a system to track and calculate employee turnover monthly. Spend the time to research and answer the issues raised about turnover.

Establish an exit interview process to learn more about why people leave. And 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.

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 of abandonment as orders you never get — period. What percent of your abandonment rate never calls back? What percent are lost sales?

Scheduling practices


Scheduling the right number of reps according to the call levels is critical to service as well as containing costs. You must understand the forecast from marketing and then meld it with your agent requirements. Whether you use spreadsheets or a 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? Can you maintain schedule adherence? Do an analysis after the fact, measure the results. Did the schedule work out? Was there adequate supervision? Did the reps work the schedule produced?

As e-commerce becomes a higher percentage of the total orders, call centers will have to adapt to this shift. Measuring your true internal costs, while aiming to contain and lower them — can help you maintain a high level of customer satisfaction and weather these difficult times.

Curt Barry is president of F. Curtis Barry & Co. (www.fcbco.com), a multichannel operations and fulfillment consultancy.

COMPARATIVE CALL CENTER DATA
Total calls answered Total labor cost Total labor cost/call Total labor cost/min. Call length Lines per order Total phone orders Cost per phone order Cost per line
Company A 2,251,413 $6,314,572 $2.80 $0.55 5.14 2 2,663,839 $2.37 $1.19
Company B 918,646 $2,095,991 $2.28 $0.56 4.1 3 664,123 $3.16 $1.05
Company C 548,116 $1,251,749 $2.28 $0.48 4.8 3 355,469 $3.52 $1.17
Company D* 278,000 $785,601 $2.83 $0.39 7.2 6 168,000 $4.68 $0.78
Company E 167,938 $508,470 $3.03 $0.98 3.1 4 73,913 $6.88 $1.72
Company F 3,195,869 $9,951,856 $3.11 $0.51 6.1 2 1,782,260 $5.58 $2.79
Company G* 295,923 $806,913 $2.73 $0.57 4.8 4 93,632 $8.62 $2.15
Company H 1,775,656 $3,240,820 $1.83 $0.43 4.2 5 1,101,116 $2.94 $0.59
Company I 1,403,972 $2,763,487 $1.97 $0.60 3.3 3 805,553 $3.43 $1.14
Company J 181,350 $550,618 $3.04 $0.63 4.8 3 85,171 $6.46 $2.15
Company K* 170,000 $970,000 $5.71 $1.97 2.9 2 60,000 $16.17 $8.08
Company L 8,538,295 $11,836,531 $1.39 $0.31 4.5 2 3,980,652 $2.97 $1.49
Company M* 647,594 $2,824,912 $4.36 $0.95 4.6 3 378,287 $7.47 $2.49
Company N* 118,000 $491,000 $4.16 $0.92 4.5 2 44,290 $11.09 $5.54
Company O* 54,309 $492,000 $9.06 $0.92 9.8 3 33,565 $14.66 $4.89
Company P 471,249 $1,506,000 $3.20 $0.78 4.1 2 218,436 $6.89 $3.45
Company Q 1,185,355 $2,253,438 $1.90 $0.38 5 2 399,279 $5.64 $2.82
Company R 1,853,258 $3,248,554 $1.75 $0.39 4.5 5 1,175,094 $2.76 $0.55
Company S 115,806 $278,245 $2.40 $0.80 3 3 56,261 $4.95 $1.65
Company T 1,179,876 $3,180,000 $2.70 $1.17 2.3 2 746,839 $4.26 $2.13
Totals & averages 25,350,625 $56,566,629 15,037,253 $3.76
Total labor (direct and indirect) does not include benefits; call length is in minutes; * indicates b-to-b company; order totals are phone orders; cost per phone order is a weighted average