Do you know your Cost of Service?

Peter ElliotPeter Elliot
Senior Consultant – Europe
Customer Service and CRM

There is a largely linear relationship between the Quality and Cost of a customer service operation. Intuitively, the better the quality of service offered, the higher the cost. Take the simple example of answering a customer call. To offer the highest service level, the call will be answered immediately by someone who can resolve the issue. However, this also implies a competent staff member is waiting to take the call, and either they will be interrupting another task, or doing nothing. Both of these have a cost, so to be more efficient and keep staff occupied with customers all the time, they may work to a queue. The queue implies customer wait time, which can vary with peaks and troughs, which may cause a deterioration in service quality.  To avoid staffing up for the peaks, the queue can be used to smooth them out, lower cost again but even higher customer wait times, so lower quality service. Striking the right balance for the business is the grist for the mill of the contact center manager.

Many years ago, I worked for an IT company as a service engineer. This company was renowned for excellent service, and they built a good business on the back of it. We were field-based, and had busy times and slack times. During the slack time, we often just waited for a call – I became an expert at pinball! But customers loved the fact we could respond quickly, and as staff we were pretty satisfied as well. Its great getting constant accolades from happy customers, and appearing in surveys as #1 for service. ‘Whatever it takes to serve the customer’ was our motto.

One day, we were called to a meeting with our VP of Customer Service. He announced the company had decided no longer to be rated #1 for service, but would be happy to be #3 or #4. We were horrified, and thought it was the beginning of the end for the company. Looking back however, it was a sensible business decision. Having established a reputation for good service and products, they had decided to take a calculated business risk to reduce service costs and improve service margin, by changing from being ‘excellent’ to ‘very good’. This change resulted in fewer staff, and we had to cover more customers. No more slack time, more travel, and some customers had to wait longer. Managers now had to earn their salary and make priority decisions. But the business profited at minimal impact to the quality of the service. It was successful for our service teams, and we maintained our reputation for good service, even though we had to work harder. The company subsequently made some poor product decisions and went out of business, but that’s another story!

Most companies aspire to offer the best customer service their budgets will allow. Depending upon other business priorities though, service budgets can suffer. Service managers will typically have to balance their aspirations against requests from the business to cut costs. Where can efficiency be improved that will have the least or no impact on service levels? Do we want to tier our services so we offer the best service to our most valuable customers?  Do we know which customers are most valuable? Which products are costing us most to support, and can they be improved for less than the service cost? Can we deliver the service from lower cost locations or use lower cost channels? Should we invest in a knowledgebase so that customers can help themselves rather than place a call? In order to answer these questions all aspects of the operation must be measured in financial terms to determine where opportunities exist.  Cost per Call, or Cost per Contact can be useful measures to help identify where efficiency can be improved. However, whilst improving your efficiency it is essential to ensure that the quality of your service does not suffer, and there are a number of measures you can adopt such as NPS®, CES, CSAT,  that will ensure you achieve the right balance of Cost vs Quality for your business.

Peter Elliot is an experienced and professional consultant. Peter and his peers at The Taylor Reach Group, assist companies and organizations to overcome business, strategic and operational challenges in their call, contact center and customer facing organizations. 

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