When we discuss about outsourcing and in particular offshore outsourcing, we often discuss about the cost of salary. In a previous post I showed how an outsourcer’s labor costs can vary  dramatically when changing countries. Even within Europe.

But cutting the labor cost by half does not mean the end cost can also be reduced by 50%. Other costs needs to be considered. In a typical inshore call center end cost can be roughly 2 times the cost of the agent.

Of course this varies between locations (e.g. UK vs. Italy) but for the sake of discussion, let’s assume the hourly cost of salary for our center is 10 € and that we can charge the client 20 €. The additional 10 €, in addition to the outsourcer’s margin, pay a long list of other costs.

These costs are often very similar between where in the world your center is located and, in most cases, savings on a cost item are compensated by additional costs on another. Let’s see some of these costs.

Rents: renting an office in an offshore location may be cheaper than renting in central London. But it is often not very different if you need a facility with proper electrical and network wiring. The stock of this kind of building tends to be limited and overpriced in most offshore locations.

Telecom: These days, thanks to the widespread adoption of Voice Over IP, phone costs are not very different between offshore and nearshore centers. On the other end Internet connectivity can still be quite pricey.

In our case, with more than 1.000 concurrent calls during peak hours, Internet was not reliable enough to sustain all our voice traffic. So we had to invest in a dedicated international link. And this is a cost that adds to the overheads.

Management: the cost of management can vary greatly between different offshore centers. Pure offshore players hire local managers, whose cost is lower than expatriates. Other players relocate managers from western countries in order to bring in more expertise.

We took this second approach, because we thought it was better for our clients and helped us support our warp-speed growth. But this adds to the costs as a relocated manager is much more expensive than one recruited locally.

Other infrastructure and G&A costs: all other costs tend to be very similar between countries. You will spend less for cleaning the office (a labor intensive task) but you will spend more for PCs (offshore markets are usually less efficient than western markets). You will spend less for office furniture, but you will need to buy a backup power generator.

Overall the som of all these costs do not vary much between countries.

So what’s the cost saving from offshore outsourcing on the bottom line?

If we assume that in a developed country 50% of the cost for outsourcing services is the cost of agents’ salaries, and that the other 50% is not varying sensibly between countries, every 10% saved on personnel translates in a cost saving of 5% for the client.

So, moving a service from a western country to Romania may a cost saving on personnel (salary + taxes) around 75%. But the real cost saving in terms of overall costs is more in the range of 30-40% .

Phone costs reductions

It is undisputable that VOIP has reduced the phone bills of call center outsourcers. In the last 4 years the cost of 1 minute of a national call decreased by 50% reaching a level well below 1 euro cent. And the even better thing is that calling all Western Europe now has the same cost as calling nationally. The cost saving in the same period on internationa call has reached 90%.

The table below shows the cost of a minute in euro cents for a center with a high volume of calls.

Call costs for a call center

Higher scalability

But VOIP didn’t reduce phone costs only. Also the whole infrastructure is now cheaper.
If a call center that generates 1.000 concurrent calls uses ISDN for termination, it needs to invest thousands of euros in equipment. And a similar investment must be done by the service provider. 

If VOIP is used, scalability is extremely easier: increasing the number of lines requires only some additional bandwidth and some processing power on gateway servers. Both low-cost commodities.

But this cost saving dodn’t come free: quality of the phone service suffered greatly. And the most relevant issue is not the quality of the voice sound: offshore call centers need to use high compression codecs (G.729 or GSM) anyway.

Higher call set-up time

One of the main problems that we need to tackle is the increase in call set-up times. Today it is common to wait more than 10 seconds before a call is established. And, because of the high number of calls made by an agent, all these wait times compound to multiple minutes every hour.

Reduction of ASR

The ASR (Answer Seizure Ratio) is the number of answered calls divided by the total number of originated calls. With the conversion of providers’ networks to VOIP we see a gradual decrease of this percentage.

In this case the call center must increase the number of attempts for each contact, therefore decreasing agents’ productivity.

Is going back to ISDN a solution?

Unfortunately these factors are largely independent from the technology used to connect to the phone service provider. In fact, even if we use ISDN to connect, it is more and more likely that the provider’s internal network has been largely converted to VOIP.

An this is even more likely for international calls. Due to the high price pressure, all telcos are now forced to trade off quality for cost saving.

What can call senters do?

In addition to doing a thorough due diligence when choosing telcos, it is increasingly more important to use more than one provider. Even the largest and well known companies often have problems on their network. Maybe only on a few destinations.

We now need to have an active management of call termination, diverting different routes to the best performing provider at any given time.

Another tool that is now essential is a good predictive dialer. These systems can increase productivity in a call center increasing the number of dialed calls by means of statistic algorithms that compensate both the ASR and the call set-up time.