Calculating Customer Service Costs
An analysis of Cost per Conversation metric
Customer service costs are a significant aspect of operational expenditure. A good metric to analyze these costs is Cost Per Conversation (CPC). A conversation, also referred to as a ticket or resolution, is the string of customer messages related to the issue(s) presented on the original message. Explore our guide to learn how to calculate the customer support costs using both a straightforward labor cost analysis and a comprehensive total cost method.
Table of Contents
Simple Method: Labor Cost Analysis
Step 1: Identify Labor Costs
Identify all labor costs associated with customer service during a given time period. This includes salaries, taxes, benefits, overtime, and fees for Business Process Outsourcing (BPO) services.
Step 2: Determine the Number of Conversations
Count the total number of customer conversations handled during the same time period. When choosing the time frame for the calculation, it's best to use a baseline that represents your operations. For example, if you often hire new agents, include a time period where new agents are being trained.
Step 3: Execute the Calculation
The formula is:
Example:
If the total labor cost for a quarter (3 months) is $60,000 and the number of conversations handled is 6,000, the CPC is $10:
How to Calculate CPC
CPC can vary significantly based on the size of the business, industry standards, and the efficiency of the customer service operation. However, a general benchmark is:
- For smaller businesses, a CPC range of $7 to $12 is common.
- For larger enterprises, a CPC range of $3 to $6 is typical due to economies of scale.
Comparing the calculated CPC against these benchmarks and industry averages provides a preliminary understanding of the cost efficiency of a customer service operation. Additionally, analyzing trends in CPC over time and benchmarking against industry standards or similar-sized businesses can provide a more nuanced understanding of the operational efficiency and where there might be room for improvement.
Total Cost Method
Step 1: Incorporate Additional Direct Costs
Include direct costs such as reverse logistics for return shipping, product costs for non-resellable items, and credit card transaction fees incurred during the time period.
Step 2: Account for Indirect Costs
Factor in indirect costs such as time spent on managing and hiring agents or overseeing BPO relationships.
Step 3: Execute the Calculation
The formula is:
How to Improve CPC
Improving CPC can be complex, especially when striving to maintain or enhance customer experience. Some straightforward tactics to reduce CPC include lowering labor costs through outsourcing, reducing service hours to consolidate work and minimize downtime, or implementing automations like chatbots. While these tactics may yield cost reductions, their impact on customer satisfaction must be carefully evaluated. We will delve deeper into these strategies in subsequent articles.
Simplify CPC Management with MelodyArc
You can eliminate the complexity of managing CPC with MelodyArc. MelodyArc offers a flat CPC rate with no minimums and no long-term commitments, simplifying the cost management aspect of customer service. This approach allows businesses to have a clear understanding of their customer service costs without the multifaceted calculations and management typically required.
Frequently Asked Questions
What are some common mistakes people make when calculating customer service costs?
Watch out for hidden costs like office rent, team management, and benefits. Track your costs regularly to avoid surprises, as well as understand the root cause of deviations. By doing this, you'll see the real cost of customer service and make smarter choices for both your customers and your company.
How often should I calculate my customer service costs?
At least quarterly, but ideally monthly as part of a monthly business review. Track regularly for clear data, but don't overdo it, doing what’s best for you and your team.