Companies today are finding it increasingly challenging to cut costs without sacrificing quality and customer experience. It is no surprise that “cost-centers,” such as in-house call center operations, often come under scrutiny when corporations look for ways to reduce expenses and improve efficiencies.
The decision to outsource is predicated on many considerations, including cost, which is very often “the” deciding factor. And yet, a number of companies often grossly underestimate their fully-loaded costs to operate work-at-home or on-premise internal call centers.
The most common miscalculation of cost occurs when leadership views their internal call center agent hourly wage or salary as the “only” cost to operate in-house call centers. This often leads to the unrealistic expectation that an outsourced call center vendor must quote an all-in hourly rate that is competitive with the client’s in-house agent wage rates.
This frequently happens at startup and nascent operations but, surprisingly, it also occurs at larger companies. When the client does not have proper accounting methods or the organization simply is not calculating all line items required, there is often the false assumption that in-house is less expensive than outsourcing, and the client makes the incorrect decision not to outsource.
Let us dig into this a bit more…
Not a Wage-on-Wage Comparison
When comparing in-house vs. outsourcing, you must account for all the costs required to operate an internal call center. Your U.S. in-house call center might be paying agents $15/hour, for example, but that is not your all-in hourly rate. The agents’ base wage rate is just one of dozens of line items that must be included.
As a general rule, the all-in, or fully loaded, hourly rate for an in-house call center is around 2 - 2.5x the agent base wage rate, since the cost to your company also includes the cost of management, executives, insurance, benefits, hiring, training, facilities, technology and more. So, if you are paying agents $15/hour, then it is likely that your in-house all-in hourly rate might be closer to $30 - $35/hour or higher. We have seen some in-house operations in the U.S. with an all-in hourly cost close to $40+/hour. Now, of course, many in-house operations run quite lean and others have favorable cost structures, and therefore, the all-in hourly rate is lower in these operations.
In-house U.S. vs. Nearshore or Offshore Pricing
Let us look at this another way. Assume that your company operates internal call centers in the U.S., and you are exploring lower-cost nearshore or offshore call centers. How would you determine the amount of potential savings?
The WRONG way:
If we are paying internal call center agents $15/hour in wages, then our total internal costs are $15/hour; therefore, a nearshore or offshore outsourced call center vendor must quote us less than $15/hour to be competitive with our in-house costs.
The RIGHT way:
If we are paying internal call center agents $15/hour + our supervision costs, management costs, HR, technology and telephony costs, executive management costs, and other fixed and variable expenses, we are probably paying closer to $35/hour or higher. Hence, a nearshore outsourcer at $15/hour saves us over 50%.
In other words:
U.S. Onshore vs. Nearshore Outsourcing
- U.S.-based In-house Call Center Agent Wage $15/hour (range) = $30-$40/hour all-in (+/-)
- Nearshore Outsourced Call Center Agent Wage $6/hour (range) = $15/hour all-in (+/-)
Work-at-Home = Lower Costs? Not Really
In the past, work-at-home call center operations were thought to be less expensive to operate vs. on-premise or brick-and-mortar call centers. However, the pricing delta closed rapidly in 2020 due in large part to the pandemic. Here are just a few reasons why:
Demand: The massive spike in demand for a work-at-home call center agent workforce caused a frenzy of technology deployments, logistical, training, staffing and other related costs, which led to an increase in pricing among work-at-home BPOs.
Increased Operating Costs: BPOs that shifted from brick-and-mortar to work-at-home reported to us that they did not experience a decrease in operating costs. In fact, their SG&A stayed flat or increased in some cases. And keep in mind that most “work-at-home” BPOs still have physical call centers open. There are still incurring facilities expenses because many BPOs still have socially distanced on-premise sites operating.
Subject-Matter Experts: Most elite BPOs have not cut corners in terms of management and support staff. In fact, many have beefed up their support staff to help effectively manage a virtual workforce and virtual architecture. BPOs have had to invest heavily in new equipment, technology and platforms to support work-at-home operations.
Contractors vs. Employees: Some, not all, work-at-home BPOs hire “1099 call center agents” and require them to pay for their own equipment and training, then have those fees deducted from their paychecks. Most other BPOs absorb these costs and do not require the call center agent to share the expenses of being hired. Some BPOs are subsidizing agents for better internet bandwidth and computers.
Inaccurate Calculations = Questionable Decisions
Inaccurate comparative cost data and analysis leads to clouded decision-making about outsourcing some or all your agent headcount with a 3rd party call center BPO vendor. Once you factor in all applicable cost components, such as those listed below, only then can you get an accurate calculation for an apples-to-apples comparison.
Call Center Staff and Labor
Staff and labor budgets include numerous line items in addition to agents’ base pay. Other potential compensation costs that must be factored in include benefits like health insurance, 401k, paid time off, parental leave and taxes (e.g., social security, Medicare, federal and state workers compensation and unemployment taxes), as well as other perks like tuition reimbursement, childcare, wellness programs and more. According to the U.S. Bureau of Labor Statistics, the cost of benefits makes up approximately 30% of the total Employer Costs for Employee Compensation (ECEC).
Compensation costs for call center management and other support resources — such as supervisors, trainers, coaches, quality assurance, WFM, reporting and data analysts — count as additional expense items, yet these costs are typically factored into the call center outsourcer’s total cost per hour.
If you have an in-house operation, other departments generally chargeback the expenses that they incur on behalf of the call center, but the company still absorbs 100% of those costs, such as human resources, accounting and IT. Call centers are high-turnover operations, so add the cost of recurring recruiting, hiring and training of new agents. A recent LOMA study reported that the average cost of training a single call center agent averaged $7,500.
While your company pays 100% of staff and labor costs, most call center vendors typically include all the following costs in their total cost per hour:
- Wages, benefits, taxes and hiring costs of your agents, supervisors and quality management staff
- Salaries, benefits and taxes of your call center management team
- Chargebacks for business services such as HR, accounting, IT, etc. (if applicable)
Executive Management Costs
Call center vendors include executive management costs in the hourly rate they quote to clients. The same rule applies to the client side – you must bake in the cost of every manager, director, VP and above with a direct or dotted-line management oversight of in-house call centers. A key benefit of outsourcing is gaining the expertise of an experienced call center leadership team without having to hire them yourself. According to Salary.com, the average salary for a call center director in the United States typically falls between $123,800 and $172,300.
The following salaries are included in the call center vendor’s all-in costs:
- Cost of every front-line leader
- Cost of every senior executive
Call Center Facilities and Overhead
This topic will spur much debate with the major shifts to work-at-home operations. Even with the sharp rise in remote agent services, many BPOs continue to operate high-cost on-premise call center locations. Keep in mind that not every client has approved work-at-home agents. Therefore, a large number of BPOs must operate internal sites to support clients that require on-premise agents.
Furthermore, many of these physical call center sites are not operating at capacity. These BPOs have had to incur considerable capital expenditures to retrofit space and facilities to ensure a safe, socially distanced environment, or risk COVID-19 breakouts and potential closure of the facility by authorities.
The following are examples of call center facilities and overhead expenses that many, if not most, BPOs are still incurring:
- Facility rent, leases, utilities, maintenance
- Upgrades and build-outs for COVID-19 compliance
- Supplies and consumables
- Travel costs
- Business continuity
- Corporate marketing
- License and bond expenses
- Compliance and other certifications
- Call center technology and maintenance
For work-at-home and premise-based solutions, companies must factor in the total cost of ownership (TCO), and not just the upfront costs of the technology. Call center technology TCO includes the capital costs for equipment (hardware, software, licenses), deployment costs (both internal and external resources), annual maintenance and support costs, technology upgrades and annual depreciation.
The cost of cloud-based solutions is determined on a per-usage basis. While research by Aberdeen has found that companies that deployed cloud-based call centers enjoyed 27% lower annual contact center costs than traditional on-premise centers ($112.5 million vs. $155.0 million), companies with in-house centers still assume 100% of the cost of cloud-based solutions, in addition to other workstation and facility equipment costs (see below).
Standard technology and maintenance costs included in a call center vendor’s total cost per hour include:
- Investments in computers, headsets, telephones, monitors
- Technical support chargebacks or services
- Technology maintenance contracts
- Application and storage servers, software for contact handling and WFO applications
- Contact-handling hardware, if applicable, including ACD, IVRs, Dialers
Contact Center Telecommunications and Networking
Telecommunications and networking costs account for 3.7% to 6.5% of overall contact center costs, according to consulting firm Strategic Contact. The following are some of the contact center telecommunications and networking expenses to include when comparing in-house vs. outsourced call center pricing:
- Dedicated internet access and mobile internet contracts
- Dedicated T’s and mobile voice contracts
- Voice network per-minute charges for toll-free, local and long-distance usage
- VoIP services
- Data storage
Getting Started with Your Call Center Cost Comparison
When comparing outsourcing vs. insourcing call center pricing, developing a more accurate picture of the actual costs to operate an in-house call center is a good place to start.
CustomerServ’s In-House vs. Outsourced Call Center Calculator is a user-friendly tool that can be helpful in crystallizing your internal vs. outsourced costs.
Outsourcing intelligently, with the right vendor partner(s), can be a winning strategy. Remember, do not choose a vendor by comparing hourly rates alone. There are numerous additional variables to consider including long-term value, return on investment, innovation, scalability, customer experience and cultural alignment. Choose a partner that lives your brand and becomes an extension of your company.