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Outsourcing customer service has become a common strategy for businesses to meet customer needs and expectations. After all, for many customers, bad customer service is a deal breaker. In the case of 56% of consumers in Coveo’s study, they never or rarely reach out to a brand about their lackluster customer experience (CX). So, what did these disappointed consumers do? They jump to another competitor.
As customers demand more from brands, the need to improve operational efficiency, scale your business, and integrate advanced customer service technology (including artificial intelligence) through customer service outsourcing becomes even more imminent.
Outsourcing customer service is a cost-effective strategy, no doubt about that. However, any smart business owner will research and assess the cost of customer service outsourcing. If you’re looking to invest in outsourced customer support and maximize its benefits, this article will do just the trick.
What Goes Into the Cost of Outsourcing Customer Service?
The cost of outsourcing customer service includes direct, indirect, and hidden expenses. By understanding these expenses, you can set a realistic budget and enjoy a higher ROI on outsourcing.
Direct Costs
These refer to a service’s upfront and traceable expenses, such as salaries and overhead. Below are the most common direct costs of outsourcing customer service:
1. Labor
Customer service outsourcing includes the cost of compensation and benefits for each personnel in your outsourced customer service team.
2. Technology and Software
Technology expenses include the licenses and software subscriptions to deliver efficient customer support.
3. Implementation Fee
Implementation or start-up fees cover the cost of initial training and other activities associated with creating an account with an outsourcing company.
4. Service Fee
Outsourcing companies earn profit from service fees. These can be charged on a monthly or project-based basis, depending on your choice of pricing model.
Indirect Costs
Indirect costs are operational expenses, which are necessary to keep the outsourcing company running smoothly.
1. Overhead
Overhead expenses include infrastructure, office rent, utilities, and administrative costs.
2. Training Fees
Training doesn’t necessarily stop at onboarding. Additional training on new processes or technology may be required to improve agent performance and service delivery.
3. Management Fees
Project managers oversee the accounts they handle. Having a dedicated project manager for your account incurs additional expenses.
4. Compliance, Data Security, and Legal Fees
Costs associated with local or international compliance, contract drafting and negotiation, and data security may be incurred based on industry requirements.
Hidden Costs
Hidden fees are expenditures that are not disclosed upfront by the outsourcing partner. In most cases, they’re much more apparent as you go into the partnership. Being aware of hidden fees can save your company hundreds or thousands of dollars each month.
1. Performance and Quality Issues
Lackluster agent performance leads to quality issues and poor customer service. Poor performance and service quality incur not just financial costs, but also inefficiencies and reputational damage.
2. Unclear or Badly Written Service-Level Agreements (SLAs)
SLAs outline everything from objectives to required deliverables to response times and penalties. A poorly written SLA results in inefficiencies, lackluster performance, ambiguity, and conflicts of interest.
3. Natural Disasters and Unforeseen Events
Floods, power outages, health crises, and political instability lead to errors, productivity loss, and a decrease in service quality. All of which can skyrocket outsourcing costs.
4. Currency Fluctuations
Foreign exchange rates constantly fluctuate, influencing your total bill for outsourcing customer service.
What Factors Affect the Cost of Outsourcing Customer Service?
Customer service outsourcing costs are not static. Before outsourcing customer service, here are the factors that may affect your outsourcing costs:
1. Choice of Outsourcing Destination
In outsourcing, location is everything. Where you outsource affects your bill. If you’re a US business owner, will you outsource customer service to a local provider, nearshore to a Mexican vendor, or offshore outsource to a company in the Philippines? Your answer depends on your customer needs and business goals.
Choose a domestic outsourcing partner if fast response times and cultural compatibility are high on your priority list.
But if you prefer bilingual support (Ex: English and Spanish), minimal time zone difference, and lower labor costs, then outsourcing to Latin America is a great choice.
Alternatively, outsourcing to the Philippines is right for you if your business needs cost-effective after-hours support and English-proficient customer service agents.
2. Customer Support Agent Headcount and Experience Level
How many customer service agents do you need? This depends on your requirements and the volume of customer support interactions. You can also start small and gradually increase your headcount.
Additionally, the experience level and professional background of agents can influence the cost of customer service outsourcing. Do you prefer your outsourced customer service team to have experience working in your industry? Do you want agents who have technical backgrounds or are proficient in using AI in customer support?
When building an outsourced customer service team, consider your business goals as well as the skills and experience of your agents. Both of these are essential in helping you meet customer expectations and aim for a higher quality of support.
3. Type, Scope, and Complexity of Customer Service
The project type and scope determine your total cost of outsourcing customer service.
For example, technical support requires troubleshooting skills and a vast knowledge of technical issues and concepts. Finance customer support requires an understanding of financial information, finance and banking processes, and compliance standards. As such, the cost to outsource these services may be higher.
Likewise, the level of service also determines the cost. Basic, low-level, or general customer service is cheaper. However, high-level support is more expensive as it demands different skill sets and professional experiences.
4. Coverage and Operating Hours
Your outsourced team’s coverage and operating hours can potentially increase costs, so do consider the time zone difference.
In the Philippines, employees in the private sector who render work from 10:00 pm to 6:00 am are paid an additional 10% night shift differential. This premium can potentially increase your total outsourcing costs.
5. Customer Service Technology
Customer service outsourcing includes the cost of technology and tools for the project. What adds to the complexity here is your business and customer needs.
Do your in-house agents frequently resolve basic inquiries? In this case, you’d benefit from automation technologies. Does your customer support lack structure or suffer from poor resource optimization? A tiered customer support software solution may be ideal for your business.
You’ll also need to find an outsourcing partner who can provide cutting-edge technologies and source agents who excel in your tools or software. The vendor’s expertise, the quantity of technology, and the cost of software licensing and subscription can add up to your bill.
How Much Is An Outsourced Customer Service Professional In the Philippines?
If you’re offshore outsourcing customer service in the Philippines, you made the right choice. According to the latest findings of the Education First English Proficiency Index (EF EPI), the country has scored 570 points, placing 2nd in Asia and 22nd globally.
A report by the Social Weather Stations also found that most Filipinos (80%) can understand English verbally and in writing.
In this section, we will compare the estimated annual salaries of a customer service agent in the Philippines and the US.
Cost of A Customer Service Professional In the US
Generally speaking, US hiring expenses cost $4,683 USD per employee. But this figure can vary from role to role. Below are the average salaries of various customer service roles:
- Customer Service Agent: $20,500 USD-$129,167 USD
- Technical Support Agent/Specialist: $27,000 USD-$91,500 USD
- E-Commerce Customer Support Agent: $20,500 USD-$56,000 USD
- Customer Service Manager: $77,325 USD-$122,780 USD
Benefits in the private sector cost an hourly average of $13.58 USD, translating to $28,246.40 USD annually per employee working a 40-hour work week. Depending on the agent’s role and seniority level, annual total costs can range between $48,746.4 USD to $151,026.4 USD.
Cost of A Customer Service Professional In the Philippines
To begin with, a Filipino working in a non-agricultural sector in the National Capital Region (NCR) earns ₱695 per day or $11.93 USD. If you’re outsourcing customer service to the Philippines, here are the estimated annual salary ranges of the aforementioned roles:
- Customer Service Agent: $3,090.84-$6,181.68 USD
- Technical Support Agent/Specialist: $3,296.88 USD-$13,101.63 USD
- E-Commerce Customer Support Agent: $6,125.12 USD-$10,515.08 USD
- Customer Service Manager: $7,211.90 USD-$24,704.91 USD
Although the salaries above may vary depending on the provider and the agent’s experience level, hiring a Filipino outsourced customer service professional (even for a managerial role) is cheaper than hiring locally.
This allows for increased scalability during peak customer service operations, such as Black Friday, Cyber Monday, and Christmas.
What Is the ROI of Outsourcing Customer Service to the Philippines?
Most outsourcing companies claim that businesses save around 70% (or more) on labor and overhead expenses. There’s some truth in that, of course. Apart from cost savings, ROI in customer service outsourcing also manifests in faster resolution times, better customer satisfaction rates, and stronger customer loyalty.
In this section, we’ll provide a sample calculation of the ROI of customer service outsourcing using an imaginary scenario. For now, let’s assume you spend a total of $700,000 USD each year in in-house expenses.
Sample Cost Breakdown of Customer Service Outsourcing
- Customer Service Agent (x20): $61,816 USD per year
- Benefits: $14,126.4 per year
- Service Fee: $24,000 USD per year
- Yearly Total: $99,942.4 USD
ROI
- Cost Savings: $600,057.6 USD
- ROI: 85%
Important: Outsourcing expenses, total cost savings, and ROI depend on several factors, including the provider’s HMO, years rendered by the employee (which affects the amount of 13th-month pay), the agent’s experience level, and service incentives.
How to Maximize Cost Savings When Outsourcing Customer Service
The trick to maximizing cost savings is not by choosing a dirt-cheap outsourcing company or a vendor with different core values from yours, but by working with the right one.
Investing in a cheap, poor-performing outsourcing company is a recipe for disaster. Empty promises and no tailored or regular coaching?
Your business is in for a wild ride of off-brand correspondence, errors, and negative feedback. If you don’t end the partnership right away, these mishaps can cost you in the long run, and no business owner would want a negative ROI.
If you want your customers to be happy while enjoying higher cost savings, you need a reliable third-party vendor.
Obviously, there are factors to consider when evaluating a potential outsourcing partner. Here’s a brief checklist:
- Shared core values
- Software expertise
- IT and cybersecurity infrastructure
- Track record of providing excellent customer support
- Rigorous hiring and vetting process
The best customer service agencies in the Philippines offer immense value to your business — whether it’s a reduction in unresolved tickets or an increase in sales and positive customer feedback. Any outsourcing company knows that good customer service is about people.
Competent outsourcing companies also put a premium on their employees. They invest in their development and train them on the latest customer service tools. Simply put, if you want premium-quality outsourced customer service, expect to pay premium prices.
Optimize Costs and Improve Metrics By Outsourcing Customer Service to KDCI
Customer service is an avenue for building strong customer relationships. It is through these valuable relationships that consumers remain loyal to your brand. But if customer service metrics and customer experience are more lackluster than usual, outsourcing customer service is your best move.
At KDCI Outsourcing, we help you build a dedicated team of customer service agents who will deliver exceptional customer support at your preferred operating hours. Our library of AI-powered customer service tools is designed to streamline customer support at scale, improve metrics, and enhance customer relationships.
Let’s help you optimize your overhead. Contact us for a detailed price quote!
