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Offshoring math 101

The differences in labor costs are pretty obvious between onshore and offshore call centers. Measuring labor and other hidden costs can get tricky, however.

Which outsourcing direction to turn? A call center agent making $15 an hour in the United States versus one making $4 an hour in India -- the math doesn't seem to make the answer that difficult.

And it isn't.

Firms considering offshoring their call center just need to make sure they take into account all the costs.

In fact, cost saving is only one reason for offshoring a call center, said Bill Price, president and CEO of Driva Solutions, a Bellevue, Wash.-based outsourcing consultant and application provider. Cost is generally the biggest driver of call center outsourcing. Companies have squeezed as much efficiency and cost savings as they can out of onshore or near-shore centers, and have to look elsewhere, Price said.

A second consideration is the people who are calling in to your call center. If customers are of low or medium value to your company, it might be well worth outsourcing those contacts. High value contacts might make sense to outsource as well, but firms should be more careful, Price warns. In that case a company might consider setting up its own call center offshore where it still has a greater degree of control over its agents but can reap the rewards of the lower labor costs.

"All contacts and all customers aren't created equal," Price said.

For more information

Read about the future of U.S. call centers

 

See our expert reveal some of the hidden costs of outsourcing

For example, calls to directory assistance may be highly valuable to the customer seeking the information, but of little value to the telco. That type of work is going offshore, but the high value calls are headed abroad as well.

"We're seeing the whole range going offshore, but now there's greater discrimination going on," Price said.

The third consideration is one of focus. Are you good at providing support? In a lot of cases the answer is no, and it is better to leave the support work to someone experienced with it, allowing a company to focus on what it does best, Price said.

A firm running three of its own call centers in the U.S. and outsourcing one call center within the country is spending roughly $40 million a year in operating expenses, with $15 million sunk into capital expenses like facilities, systems and real estate build-outs. If that company switches to an offshore outsourcer, it will start paying the outsourcer's capital expenses in operating costs, but the operating costs should be so much lower from Day 1 that it should be well worth it. There are some additional costs that need to be factored in, such as travel to the location and data security, but those should still be offset.

"If you don't start with the savings, you're not going to gain it over time," Price said. "Eventually, offshorers will have to pay more in labor and expenses. The margin will decrease unless you have more volume."

Finally, there are practical considerations like hours of operation. Price helped to take some of Amazon.com's call center activities to India. With the Indian location 12-and-a-half hours away from the West Coast, directing late-night calls there made perfect sense.

The math

Firms really need to look closely at all their costs before moving offshore, Price warns. That means looking at four different areas -- labor, real estate, systems like the Automated Call Distribution, CRM and quality monitoring, and telecommunications costs. All those need to be measured against offshoring.

"It all has to be modeled out pretty carefully," Price said. "A very key thing in this figure is what your annual attrition is, because you have to replace them with agents who are as expensive, if not more."

What you should ask a potential call center outsourcer:

Have you done this before and with what company?

 

Where do hire your employees from?

 

How do you train them?

 

How do you do a quality assessment?

 

How have you worked intimately with clients before?

 

-And just as important try and find some clients that are not reference customers.

An experienced agent who can handle 12 contacts in an hour and does it well, is generally not going to be replaced by one with the same capabilities, and if they are, they are going to require more in salary. Call center agent attrition in the United States is typically very tough with rates ranging from 40% to 100%, depending on the industry, Price warns. However, with the number of call centers and agents moving to places like Bangalore, that problem is beginning to spread.

Hidden costs

The most common mistake made in offshoring operations is one of quality, Price said. Firms need to know what makes for a good experience both from a customer perspective as well as a company perspective.

"That's really hard to do and a lot of companies don't do it right in the first place, so when they go offshore it only gets worse," Price said.

New products also tend to be problematic. It is one thing to walk down the hall and train agents on a new rollout. It is another thing to do it when they're on the other side of the world.

With "do not call" legislation limiting outbound contacts, more pressure has been placed on agents to cross-sell and up-sell customers to new products. That tends not to be a huge issue with offshore outsourcing. Success really rests in the right offer, Price said. If an agent is capable of extending that offer and making a sale it doesn't matter if they are in the U.S. or the Philippines.

Additionally, offshoring and call deflection is not an either/or proposition. Firms need to look at both, Price said.

"The way we look at it is you need to look at every single contact and interaction as an opportunity for improvement," he said. "Whether it makes sense to have agents handle it in the first place based on their value -- that's really the root structure of this thing as opposed to spending X dollars here for this or X dollars offshore."

Ultimately, it costs far less to have a customer handle a problem themselves than to speak with an agent, no matter where they are.

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