The US economy is experiencing a record-long expansion with unemployment at the lowest point in 50 years. For most businesses, a growing economy translates into greater prosperity. Consumer spending increases, the stock market and GDP rise, consumer sentiment is strong… all of which usually leads to an increase in the consumption of goods and services, higher profits and more innovation.
Is a Good Economy - Bad for Call Centers?
However, for labor-intensive industries like the call center industry, a healthy economy can be a double-edged sword.
As more goods and services are consumed, there is generally an increased need for customer service and support. An uptick in the volume of customer engagement channels spurs a higher demand for call center services, both insourced and outsourced. Intuitively, the call center industry should thrive during a strong economy, yet this is not always the case.
In fact, there is an inverse relationship between the economy and call centers. Rising contact volume during times of growth puts a strain on staffing resources. With upswings in the economy, more jobs become available and skilled agents are more likely to switch employers for a modest bump in pay. Turnover skyrockets and the call center bears the costs of recruiting, hiring and training replacements, along with a dip in service quality and productivity as new-hires get up to speed.
Then there is the flip side of the coin: When the economy starts to falter and slow, jobs become less plentiful and call centers tend to fill up. During times of high unemployment, we see less transient and more experienced workers, often with college degrees, applying for call center jobs. This leads to higher quality and retention, and better output from call centers in the USA.
The Impact of Rising Costs on US-Based Call Centers
Let’s be clear: We’re not saying that, in today’s thriving economy, US-based call centers are not hiring talented individuals or are not delivering quality outcomes—they are. Nor are we wishing for an economic slowdown or loss of jobs. A healthy economy is good for us all, and it should lift all boats. We are simply pointing out that the labor market often dictates the type of talent pool available to call centers in the USA.
There is interesting correlation that exists between a thriving economy and its ultimate impact on costs within call centers. Below are some of the factors that influence these two variables, particularly in the USA:
- A healthy economy means more jobs are available.
- More jobs mean more options for workers.
- More work options lead to increased competition for labor.
- Call centers compete with other call centers and other industries for employees.
- Call centers must increase wages to attract talent.
- Higher wages mean higher costs.
- Higher costs impact both insourced and outsourced call centers.
- Higher insourcing costs can lead to more outsourcing.
- Higher costs also lead to higher prices for outsourcing.
- The cost to outsource onshore in the USA increases.
- Higher costs can lead to more nearshore and offshore outsourcing.
Of course, this cause-and-effect is fluid, but it’s generally in line with the trend lines over the past few decades. While there isn't much empirical evidence proving call center performance and output in strong vs. weak economies, there is plenty of data that is shared among call center leaders and within the call center and BPO communities on this subject.
In our discussions on the topic with top industry leaders, there are several questions that often surface.
How are US-based call centers combating rising costs?
Many USA call center markets have become so saturated that sites are reporting out-of-control agent turnover rates. According to Site Selection Group’s most recent Call Center Saturation Report, call centers have been migrating to larger labor markets in the Southeast and Southwest regions of the United States to balance access to a larger candidate pool with lower operating costs and the availability of economic incentives.
What will happen in the coming years as wages climb?
In July, the House passed a bill to gradually raise the federal minimum wage to $15 per hour by 2025. The current federal minimum wage is $7.25 per hour and has not increased since July 2009. Whether or not the bill becomes federal law, the minimum wage already has been trending upward in many states, as much as 30% to 60%. Currently, 29 states and Washington, D.C., have higher minimum wage rates than the federal, and seven states have approved $15 per hour minimum wages.
Are we going to see a reduction in the number of US-based call centers due to these rising costs?
Some call center outsourcing vendors have suggested that their US-based centers are becoming cost-prohibitive. Still, we do not yet see a significant downward trend in USA call center growth, nor do we believe there will be a major slowdown simply because not all US companies that outsource, want their customer interactions handled in nearshore or offshore countries.
Does it mean that companies will become more open to nearshoring and offshoring vs. onshoring?
Yes and no. There does not seem to be a major trend line pointing to an increase or decrease in US-based vs. GlobalShoring ™ call centers today. For every client that goes offshore or nearshore, the same number of clients seem to be staying onshore. Every client is different, so the decision to source within the USA or globally, depends on cost models and other variables unique to each company.
What Are Call Centers Doing to Recruit and Retain Talent?
Whether insourced or outsourced, virtually all US-based call center operations are currently facing the same challenge — recruiting and retaining quality labor in a high-turnover climate.
Paying higher and more competitive wages is an obvious answer to curtail turnover, but with labor accounting for up to 60% - 80% of a call center’s operating costs, it can have a substantial impact on financial models and profitability.
While higher wages are a strong motivator for agents, millennial and Gen Z workers also value employers that provide work-life balance benefits, such as flexible scheduling, part-time scheduling and the opportunity to work from home. Some outsourcers are going above and beyond by offering perks like same-day or next-day payment of paychecks, an onsite daycare or gym, social responsibility programs, attractive facilities with modern amenities (see “Call Center Agent Attrition — Your Biggest Threat”).
Although these types of workplace benefits can help to differentiate the call center as a great place to work, they do incur additional costs that will have to be offset by an increase in revenue or cost-cutting measures in other areas.
The most important factor in battling high turnover and associated costs is the partnership that exists between clients and vendors. What clients do not want is for their outsourced call center vendor to address rising costs by cutting corners — for instance, by easing up on hiring standards for agents and support staff; increasing supervisor-to-agent ratios to the point that supervisors have no time to coach or mentor agents; or peeling off vital resources like training, analytics and business intelligence; or otherwise cutting back in ways that impact call center performance and quality.
Fair Market Value or Getting More by Paying More?
Interestingly, we’re hearing more chatter than ever about the idea of “getting more by paying more.” But are clients actually paying more, or are they starting to pay what the market dictates?
To change the mindset on how US-based call center and BPO firms should be compensated, we will have to redefine what pricing at fair market value means in the USA. The economy has been robust for a few years and unemployment has been steadily declining to record-low levels, so this isn’t a brand-new problem for US-based call centers.
The price range at fair market value needs to be fluid and adjusted to reflect the current economy. Like all businesses, vendors experience year-over-year cost increases and other pressures, including the rising cost of agent attrition. Outsourced call center vendors in the USA cannot be expected to operate profitably in our current labor market if their contracted pricing is outdated. We can’t expect 2016 outsourced pricing to be applicable in 2019 and beyond, especially if the client is seeking a tier 1 vendor (i.e. elite class) with high-quality staff and manageable turnover rates.
By paying agents a higher wage, vendors will be able to attract quality job candidates, which in turn will reduce costs. One example is training expenditures. Think about how many new-hire classes you need to invest in (both clients and vendors) to reach your desired headcount. Call centers that offer less-competitive wages typically find themselves funneling new trainees through a cost- and resource-draining revolving door. You’ll have less fallout by hiring the right talent up front.
The Vendors' Responsibility
That said, what can clients expect from vendors for higher compensation models? They can expect vendors to use modern recruiting and retention practices to attract and retain top talent. BPO and call center outsourcing vendors need to apply smarter, more creative techniques designed to appeal to the next generation of highly skilled agents.
Vendors have got to realize that today’s competitive labor landscape is no longer comprised of vendors vs. vendors vs. in-house call centers. In some respects, they are competing against a good economy. The field is much broader — it includes other industries that are seeking skilled workers. HR and hiring managers must think like job applicants when it comes to formulating effective recruiting, hiring and retention practices for today’s call center environment.
But what if clients increase the compensation models paid to vendors in the USA without seeing a material lift in employee retention, quality and performance? Does this mean that the vendor isn’t allocating increased compensation to where it was intended — recruiting the right talent and reinvesting in operations? It’s more likely that the vendor isn’t managing its operations effectively and the client should look for a better fit with another outsourcing partner.
What We’re Seeing
Every client wants competitive rates from their outsourcing vendor. But as we have stated before, if you drive down pricing too far, then expect a commensurate return on investment. If vendors pay their agents $10-$12 an hour in competitive labor markets, then clients should expect high turnover. But if the vendor puts forth a plan to pay agents more and asks the client to participate by increasing the vendor’s contracted hourly rate, then the client and vendor should both benefit from gainsharing.
Recently, several of our clients have agreed to outsourcing contracts that included creative allowances for agent retention and annual increases for cost-of-living adjustments. Most of our vendors with USA sites have increased prices in the past 24 months. Many have increased their hourly rates, training rates and some are now billing for resources such as supervisors and program managers.
We’re seeing a steady rise in positive sentiment on the client side acknowledging the challenges that their outsourced US-based vendors are facing. Some of our clients have already adjusted their contract prices with vendors and are seeing a lift in performance and agent retention while other clients are still gathering the necessary data in order to map out their onshore outsourcing strategy and pricing models going into 2020 and beyond.
In a future article, we’ll cover pricing trends, but to address the concerns we’re hearing about what the future holds for call centers in the USA, the way forward is clear:
Focus on a long-term strategy that maximizes the labor cost ROI by retaining high-quality staff, delivering strong performances and increasing revenue.