Monday, September 26, 2011

The Unturned Stone: The Untapped Profits Hiding in the Poor Quality of Modern Call Centers

The call center industry has been around for about four decades. When it began, call centers and mail were the only ways for customers to get their issues resolved. Over the last couple decades, websites, self-service kiosks (e.g., ATM’s), chat and many other channels have been developed for our customers to get help.

So by one measure, the ratio of customer touches per call center agent has gone through the roof and the service sides of these businesses are dramatically more productive. The number of call center agents may or may not have dropped depending on the growth of the business, but businesses are supporting more revenue with less call center agents.

Moreover, the cost of those agents has also dropped dramatically relative to other costs. This is because businesses keep moving their call centers to lower cost labor and facility markets, including, for better or worse depending on your perspective, offshore.

So more touches, relatively less agents, and at a lower cost equals success right? If close enough is good enough for you, then declare victory. But if stopping in the middle of a mountain climb is not your idea of success, then this article about the dramatic amounts of cost and revenue being lost in modern contact centers will be of interest.

Show me the Money

A quick overview of drivers of cost and revenue in contact centers will help reveal where and how this money is being tied up.

At a high level, the total cost of contact centers is:

(Direct Labor x DL Rate) + (Indirect Labor x IDL Rate) + (Capital Expense X CE Rate) + (Other) = Total Cost of Call Center

Now, of course, there is no one rate for Direct Labor, Indirect Labor and certainly not for Capital Expenses, but this rate idea is just there to highlight that costs are affected by those rates.

And this is in fact what businesses have done to reduce their call center costs. They have moved to lower cost labor markets. There used to be call centers in Silicon Valley and New York and Boston, but not anymore as the real estate and labor costs are too high. So now you find call centers in more rural areas of the US and even offshore to further reduce the costs. Can we continue to reduce those labor and real estate rates, yes, but as other parts of the world become more developed the rate of rate reduction is rapidly diminishing.

So that leaves the amount of direct labor, the amount of indirect labor, the amount of Capital Expense, and Other. What drives them?

As you will soon see, direct Labor is the biggest piece, so let’s start there.

Direct Labor

As an absolute number, the amount of direct labor is the biggest bucket of cost. At a conceptual level, the amount of direct labor you need is a function of Call Volume, Handle Time, Service Levels, and Shrinkage (Time Not Spent on the Phone). Let’s take each in turn.

Call Volume. This is one of the two big drivers. In general, if the call volume increases you need more agents to handle it. Your call volume could double because your revenue is doubling. This might not be so bad. However, your call volume could double because there are problems with your product or service. This will be expensive.

Handle Time. The second big driver is Average Handle Time. If the AHT per call is 10 mins, you will need a lot more direct labor than if the AHT is 1 minute.

Service Levels. If you want to answer 95% of your phone calls in under 30 seconds, you will need more agents to be waiting around in case the call volume spikes. If you decide answering 95% of your calls in less than five minutes is good enough, you will need less.

Shrinkage. If all your agents never leave their desks and you got 8 full hours of productivity out of each of them, you would not need as many agents. But they have to have breaks and lunches so you need more. In addition, there is the time they are off the phone for training and meetings and other call center functions. The more off phone time, then the more agents you will need.

Indirect Labor is all the people in the call center that are not on the phones: Coaches, Subject Matter Experts, trainers, monitors, IT personnel, etc. Capital Expense is all the technology used in the call center, and sometimes real estate. Generally anything that is depreciated.

Now lest this begin to get too complex, the good news is that the big driver of Indirect Labor and Capital Expense for Call Centers is the amount of Direct Labor. While not the whole story, the more people on the phones the more coaches that are needed, the more monitors, the more desks and computers, the more software licenses, etc.

We are left with one rather non-descript bucket: Other. The other bucket has important cost drivers that can be more challenging to quantify, but are important to look at. Here are some of the biggest.

The Effects of Poor Call Center Performance. We could get really theoretical here and try to quantify how poor service agent performance affects Customer Loyalty, share of wallet, decision to renew, etc. This is important and should absolutely not be overlooked, but we want to be more concrete in this article.

One effect of call center performance that adds up quickly is sales rate. Let’s say the upsell rate in a call center averages $5 a call. Not bad. What if you find out that the agents are trying to upsell on only 20% of the calls? That is a lot of money being left on the table.

Another quantifiable aspect of poor call center performance are any costs incurred anywhere in the company when the contact center makes a mistake. A common example is warranty processing. What if the agent does not check the warranty and the customer sends the unit in to be fixed and it is not under warranty? What if the agent does not check the customer’s address and the goods are sent to the wrong location and have to be resent internally? What if the agent does not remind the customer to remove their software before returning the console and the customer writes to complain and employees have to spend time working that issue?

Turnover. Turnover is a huge driver of seen and unseen cost. The part that is easy to see is that if I have a lot of turnover, I need more indirect labor to hire and train them and they spend a lot of time off the phone getting coached. The part that is hard to see is that, in general, the more inexperienced my agents are, the slower they are and the more mistakes they make. High turnover centers are much more expensive to run than low turnover centers.

Fines. Some call centers have to pay fines due to non-compliance. This can be true of any call center, but it is especially true of outsourcers. Outsourcers often pay fines to their clients for a failure to perform all the call steps correctly, especially recapping the call.

Over the next few posts, I will describe specific ways to attack each bucket.

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