There is no disputing that the most significant ongoing expense of any call center operation is tied to the cost of the agent.
Agent Hourly Rates – The “Initial Discussion”
How many times have you been privy to a discussion where one person says to another: “How much does it cost you per hour to run your internal call center or how much would you charge to provide 100 agents handling inbound customer service for our company? I am not happy with my current outsourcer and/or I am paying them too much. Can you beat $25 per hour? Just give me a ballpark number?”
And, so on…
Since the key barometer for most is the agent hourly production rate, we rarely have enough information or time when presented with this question during the “initial discussion,” whether at a brief meeting or on the floor of an exhibit hall. I try to encourage people that we should schedule some time to sit down for an hour or two so we can really talk about what they want to accomplish first, then we can also determine what it will cost. Inevitably an “estimated” hourly rate must be revealed right out of the gate to keep someone’s attention as well as their interest.
Drum roll…I say, and mean it, ”Yes, we can probably be at the same rate you are paying now, but we should still sit down and discuss some additional details about the nature of the work and what you are trying to accomplish.”
Now that the hourly rate has been revealed based on only 2 facts, 100 agents and inbound customer service, we have the green light to proceed with further discussions. I always say to myself, “All is well that ends well and we will flush everything out during our discussions to get to the absolute truth” in the best interests of the client.
Too often the ultimate cost justification when choosing an outsourced provider is based on that all-mighty agent hourly rate. There is no disputing that the most significant ongoing expense of any call center operation is tied to the cost of the agent. However, is the hourly rate truly the be all and end all with respect to outsourcing decisions and the ability to meet or beat your budget, increase your company’s revenues, decrease expenses and ultimately add value or dollars to the bottom line?
Minimum Requirements of Outsourced Providers – The “Cheeks in Seats”
In its purest form, any outsourced contact center provider should be able to deliver, at a minimum, the same efficiency and quality of service for their client as if they worked under the client’s roof, supervision and management. Of course, communications and calibrations between the client and outsourced provider are an extremely important part of the relationship, from the initial engagement and throughout the ongoing vendor-client relationship.
What type of value does an outsourced provider deliver to its clients by only meeting the minimum requirements? The outsourced provider saves the client from having to invest money in the new infrastructure required to build a new call center or add capacity as well as the headache of having to manage all of those functions in-house. Thus, freeing the client up some more to focus on their core business.
In a nutshell, the value the outsourced provider brings to the table in this scenario is one of convenience and variable cost; in essence, the outsourcer may say, “I have the space, resources and seats, tell me what I need to do and I will do it for you. Why take on this additional infrastructure yourself when I have it and you can rent it based on how much you use?”
For some clients, that is exactly what they want and need. They need an outsourced provider who can simply hold the line for them and be the least expensive option. This allows the client flexibility to increase or decrease staff based on fluctuating call volume and enables them to avoid initial or additional capital investments to create that increased capacity. There is an absolute need for outsourced providers who deliver services based only on this premise. Clients who need outsourced providers to play this role have no reason to make any apologies for it either. At its core, this is the type of contact center work that sits squarely in the middle of the commoditized part of our industry – outsourcing deals and transactions are akin to traders buying and selling shares of stock on the floor of the New York Stock Exchange.
Value-Added Outsourced Providers – True “Business Process Outsourcing?
We have a saying at my firm in terms of our service delivery goals and clients’ choices. You, the client, can either “Get What You Scope” or “Get What You Need.” Value-added service providers start from a premise of formulating solutions that do not simply respond to a client’s instructions, RFP or scope requirements. Value-added providers also include effective and unique training and coaching methodologies, technology solutions that drive operating efficiencies, and other processes, thoughts and approaches grounded in experience that go beyond the minimum requirements of a client’s inquiry. A value-added provider will improve overall customer engagement and experience and also delve into additional ways to have a positive impact on the client’s business.
Although many clients are very sophisticated and familiar with employing phenomenal best practices in their own contact centers and external vendors, it never hurts to surround yourself with additional people and companies that bring more tools and brainpower to the table. A value-added provider is committed to understanding what keeps their clients up at night and takes pride in being able to lower client invoices over time by continuous performance improvement and delivering a higher quality customer experience, gaining a better understanding of your business and what makes it tick.
To sum this section up, a value-added provider lives up to what outsourcing is all about in the most comprehensive way, “an option afforded companies to have certain job functions or processes handled outside the company in lieu of having those functions or processes in house,” which also means value-added providers are the most capable of taking a true hand-off from a client with minimal supervision, making their clients’ jobs easier to manage and enhancing their company’s performance.
Principles of Accounting 1 – Ah, the College Years…
My love for accounting was immediate, going back to my freshman year at the University of Maryland. I will never forget my first day of “Principles of Accounting 1” when, in the first 30 minutes of class, the professor put up the formula “Assets – Liabilities = Owners Equity.” He explained this was the essence of a Balance Sheet. He then described the balance sheet as being a camera snapshot of a business that allowed you to determine where a company stood financially at any given point in time. If your assets were greater than your liabilities, you had positive owner’s or shareholder’s equity, and tangible value in your company.
He discussed how one measured the financial performance of a business over a select period of time. He threw out formula number 2, “Revenues – Expenses = Net Income.” This was the foundation of the mighty Income Statement, aka the P&L or Profit and Loss Statement. He presented how companies earn revenues, incur expenses in order to create revenues and operate, with the goal of achieving a positive net income.
A positive net income would contribute to the company’s value and a negative net income would decrease it when you took the company snapshot (or balance sheet) at the end of whatever period was being measured. Ok – this makes sense – earn money or net income over time, take a snap shot, and the company is worth more. Lose money or incur a net loss over time, take a snap shot, and the company is worth less.
Hey, I know this not that exciting to most, but while 75% of the other freshmen were sleeping, I was so psyched about what I just learned. After the opening 30-minutes of my first college accounting class, I already understood the basics of how the income statement and balance sheet affected each other. I thought, “Wow, this is right at the heartbeat of a business and how it works.”
Of course like any occupation or profession, accounting is not that simple and things do get a lot more complicated after the first 30 minutes of an introductory course, but no matter how deep you get into accounting, you can always go back to those 2 old reliable formulas and the all-important financial statements for some fundamental perspective.
The S&P 500 – How Much Money do the S&P 500 Group of Companies Make? What do their Collective P&L’s Look Like?
The S&P 500 is a benchmark indicator of the overall US stock market condition. At a high level, it measures the stock performance of the 500 largest public companies. It currently includes 379 industrial, 74 financial, 37 utility, and 10 transportation firms, representing about 75 percent of the total market capitalization of all US firms traded in the US equity market/stock exchanges.
The chart above shows the average net margin for the S&P 500 each quarter from Q4 2009 to Q4 2012, with the most recent 3 years reported to be about 8.5% of revenues. Going back to the basics of accounting, for every $100 of revenues, these companies incurred about $91.50 of expenses for a net income of $8.50. The total revenues generated by the S&P 500 are over $10 Trillion, incurring expenses of over $8.5 Trillion! That means an overall increase in revenue or decrease in expenses for the S&P 500 collectively of only .1% translates to over $10 Billion in additional revenues or $8.5 Billion in expense reduction, respectively, in either case increasing the overall net income by that same amount.
How Call Center Managers Increase Net Income/Margin for their Company?
Whether we are part of an S&P company or some other business, whether small, medium or large, and we manage our call centers, whether internally or externally, how do we score? How do we make that S&P equivalent impact of +/- .1% or more?
Would getting your outsourced contact center providers to each lower their hourly rate by $1 or $2 achieve that goal?
We all have the intention and desire to earn money for our company whether we are placed on the offense or defense of our organization. Consider the offense of a company to be those roles primarily charged with bringing in revenues such as sales and marketing. For the most part, managing the call center or customer service function of a business is considered to be defense, or a role involving a primary mission of expense control or reduction.
Business is not like Football nor should it be treated like Football, in my opinion, where you play on one side of the ball or the other. Too often, our leaders promote this mindset, which also can stifle our thought process by driving one-dimensional thinking. Don’t give in!
Business is more like Basketball, Soccer or Hockey where the most effective players are those who, despite their classification as offense (revenue producers) or defense (expense reducers), understand and implement a practice of playing both sides of the ball equally well. Ideally, always making decisions and running operations with a balanced approach and respect for both sides of the income statement and balance sheet.
Even in Football, sometimes the defense does more than keep the other team’s offense out of their own team’s end zone; sometimes the defense scores. Actually many football games are won or lost, including many Super Bowls, because one defense is so strong they do some scoring as well.
The Case Study – Facts:
ABC Wireless, 3 Outsourced Providers and the “Hourly Rate”
For purposes of this hypothetical case study, let’s name the client company ABC Wireless, Inc. and each of their 3 outsourced providers will be Provider #1, Provider #2 and Provider #3. ABC Wireless is outsourcing to each of these 3 providers inbound customer service and tier 1 technical support calls for wireless telephone handsets, each call may represent an opportunity to sell the customer a new or upgraded handset at a charge of $100, the hours of operation are Monday through Friday from 9AM to 5PM ET, and each provider receives 8,000 calls per day evenly distributed throughout the course of the day and the week. Provider #1 charges ABC Wireless $25 per agent hour, Provider #2 charges $26 and Provider #3 is at $27.
ABC Wireless measures each of their 3 vendor’s performance based on the following Key Performance Indicators (KPI’s) on a monthly basis:
| ASA (Average Speed of Answer) | Percentage of calls answered within a defined amount of time (for example, an ASA of 80/20 = 80% of call answered in 20 Seconds) |
| AHT (Average Handle Time) | Average number of seconds agents are spending on each call handled |
| ABA (Abandonment Rate) | The percentage of callers who hang up while on hold before an agent is able to service them |
| Quality Score | Score of 0-100%, based on a balanced scorecard grading system created by the vendor and provider to properly measure the quality of agents in relation to providing what is deemed to be exceptional customer service at 90% or more |
| FCR (First Call Resolution) | The percentage of customer calls who have their issue, or reason for calling, resolved, on their initial call into the provider |
| Upsell Rate | Percentage of total calls where a new or upgraded handset is sold |
So, how did the 3 ABC Wireless outsourced providers perform this month?
The Case Study – Results:
Where is ABC Wireless getting the most value? Does the hourly rate matter?
* Number of agents required by each provider was calculated using the Erlang C Call Center Calculator from Westbay Engineers Limited. The Erlang C Call Center Calculator is a widely used tool that, among other things, helps someone estimate how many agents are needed in a call center for each hour during an eight-hour day to efficiently handle, from an agent utilization standpoint, various call volumes. It is primarily based on the number of calls received each hour of an eight-hour day, average call duration (AHT) and average speed of answer (ASA). It also takes into consideration the average delay that will be experienced between calls.
(1) The Initial Discussion Revisited
Let’s use these actual results and revisit the “Initial Discussion” – What if it was Provider #3 that was initially asked by potential client, ABC, how much would you charge to provide about 100 agents handling inbound customer service for our company? Can you beat $25 per hour? Instead of “yes, we probably can,” Provider #3 said, “No, our hourly rate would probably be closer to $27 per hour, but we should sit down and discuss the details about the nature of the work and what you are trying to accomplish.” If you were ABC, would you still take time out to meet with Provider #3?
Let’s say, despite Provider #3’s answer, ABC still agreed to meet, share and discuss.
Here is what they would discover:
(1) Only 85 agents are required to efficiently handle ABC’s call volume with Provider #3’s operational management and technology.
(2) Although Provider #3 charges $27 per agent hour, versus ABC’s current outsourced Provider #1 at $25 per hour, ABC will save over $70,000 per month on their monthly invoice from Provider #3.
(3) Provider #3 will improve ABC’s first call resolution, which will have the financial impact of reducing the future call volume.
(4) The quality of the customer service and overall customer experience Provider #3 delivers will lead to less customer churn and more loyalty and retention.
(5) Provider #3 will increase ABC’s revenues by $320,000 per month by beating Provider #1’s Upsell Rate by 2 percentage points.
(2) Principles of Accounting 1 Revisited
An increase of $320,000 in monthly revenues with a decrease of $70,000 per month in expenses will add $390,000 per month to ABC’s net income, or $4,680,000 if annualized, of added value or equity to ABC Wireless. This doesn’t even include the financial impact of improved first call resolution, customer loyalty and retention and overall better customer experience, which are very difficult to specifically calculate, although completely noticeable over time. What about the financial impact to ABC Wireless’ P&L if they shifted all their call volume from Providers #1 and #2 to Provider #3? Maybe 2-3 times the impact on value!
(3) The S&P 500, Net Profit Margin and Scoring for Your Company Revisited
How far does the $4,680,000 in additional net income move the needle? Did it move the needle +/- .1%?
If ABC generates $1 Billion in annual revenues, its net profit margin would go up .468%, almost 5 times more than the +/- .1% mark we hypothesized above. Of the $4,680,000, how much was offense and how much was defense? ABC produces $3,840,000 in additional annual revenues and reduces its annual expenses by $840,000. This picture certainly does not paint the picture of someone who only plays defense – quite a bit of offense for a “defensive” call center player.
And, finally…
How much Value should be attached to the Agent Hourly Rate?
Of course, the agent hourly rate is an integral part of the any outsourced service provider’s agreement and is the primary driver of how invoices are calculated for clients; however, call center management ultimately reins supreme and can often expose the hourly rate to have been a misleading indicator in terms of a company’s outsourcing decisions, successes and failures.
The value in the hourly rate is a lot like Waldo, very hard to find…
