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Business Journal

The Great Profit Drain

Call centers are losing money and alienating customers. Here's how to turn them around.

by Christian Hasenoehrl

There's a profit leak in a lot of businesses. In some, that leak is actually a gaping hole -- yet it's often unnoticed. Managers analyze the costs and profits of every store, service, and product, and pore over almost every operational line item. They scrutinize margins, management, and methods. They shore up weak points until the whole enterprise is as airtight as it can be -- but they still miss the leak. Meanwhile, profits pour out at an alarming rate.

Where's the hole? It's at the front door of the call center.

QUOTE: Some call centers have evolved over the years into a major money drain.

Call centers are meant to be a customer convenience -- a place where customers phone for help or to make a purchase -- but some have evolved over the years into a major money drain. Research by Gallup and others shows that employee turnover can cost organizations 30% to 176% of the annual salary of each vacant position. According to the U.S. Bureau of Labor and Statistics, in May 2004, median annual earnings for customer service representatives (CSRs) were $27,020. Based on these figures, the minimum costs of call center turnover can be estimated at $8,106 per employee. Depending on the turnover in a given call center -- and turnover in many call centers is chronically high -- a big chunk of the company's profits is walking out the door annually as CSRs leave and are replaced.

Short circuiting the machine

Perhaps it's because CSRs are so expensive to hire, train, and pay that so many call centers gorge on technology to minimize human interactions. Some use automated phone systems that avoid customers by routing them, according to their problem, to appropriate pre-recorded responses. If it turns out that a customer-CSR conversation is unavoidable, then the human interaction is timed, with the shortest possible conversation being the highest possible goal. In these call centers, the less time CSRs spend on the phone, the more calls they can take and the more productive they are thought to be. Of course, productivity is measured by the second.

Although many call centers use this approach to measuring employee productivity, it really doesn't make sense if its end result is alienating customers. In retail stores, for example, productivity isn't just measured by how fast a customer can be hustled out of the store; the conversion rate of a customer and the average transaction value for that customer matter, too, with both generally increasing with the length of shopping time a customer spends in the store. In this case, the length of the customer interaction is balanced by a measure of dollars per hour, which helps gauge the quality of the employee-customer encounter.

Call centers need to aim for a similar balance between productivity, which goes straight to the bottom line in a call center, and providing quality customer service. When call centers focus on productivity metrics while losing sight of the value of the customer-CSR conversation, service can suffer. Call duration and number of calls handled, for example, are key metrics, but if they are emphasized to the exclusion of good service, they can encourage CSRs to rush through calls. This tends to alienate rather than engage customers.

The key metric

In a call center, the metric that really should matter is the level of customer engagement, because that metric is powerfully connected to profit. Gallup research shows that the more engaged the employees, the more engaged the customers. Similarly, the more disengaged the employees, the more disengaged -- and less profitable -- the customers.

When Gallup measured customer engagement in a call center that employs about 5,000 CSRs and serves millions of customers each month, the results were eye-opening. Customers were asked to rate their experience according to their expectations: "much better," "better," "about what was expected," "worse," or "much worse." The customers who rated their experience as "much worse than expected" equated to a 15% customer attrition rate.

Gallup then examined how many calls the most disengaged customers had to make to resolve their query. Customers who rated service as "much worse than expected" had to make three calls before their problem was resolved, while those who rated the service as "much better than expected" only made 1.3 calls. In this case, the number of calls does matter -- the more times customers must call before their problem is resolved, the worse the customer engagement outcome, and the higher the cost to the center. If the average cost per call was $10 in this center, for example, poor customer service would cost the company an additional $17 per disengaged customer.

But that's not all. Disengaged employees cost more in absenteeism, lost productivity, and turnover -- all of which, most call center managers would agree, are among the industry's greatest challenges. According to Gallup research, an improvement in employee engagement of just 5% to 10% can result in an increase of 1,227 to 2,454 more available call minutes per CSR per year. One company found that turnover among the least engaged employees was higher by 20 percentage points than turnover among the most engaged employees. (See "Creating an Employee-Centric Call Center" in the "See Also" area on this page.)

Plugging the leak

If your call center represents a huge profit leak, then fixing this must be among your company's highest priorities. One place to start is by carefully selecting the people on the phone.

QUOTE: Call centers can run into trouble when they emphasize automating the human interaction.

Call centers can run into trouble when they emphasize automating the human interaction at the expense of making CSRs feel like replaceable cogs in a machine. Performing at excellence in a call center requires special talents. And considering the impact CSRs have on customer engagement, it's absolutely worth it, in terms of money, time, and effort, to select and hire good ones.

Here are some key points to consider:

  • Potential CSRs should be assessed to see if they have the right talents to excel in this role. Those who do should then be interviewed in person. This gives the employer an opportunity to build a rapport with the candidate; it can also encourage the potential CSR to believe that in this call center, he or she will be more than just another warm body filling a seat.
  • The best CSRs understand genuine customer service and have the talent for dealing with customers.

A call center can be staffed with terrific CSRs, however, and still underperform if it's poorly managed. Every customer encounter a CSR has is personal and emotional. Thus, managers must focus their attention on every CSR, every day. The managers of profitable call centers are very good at managing people as valued assets, not as cogs in a machine, and are great at inspiring engagement. Their mission is to help their CSRs maximize every customer contact, every day. They find ways to help CSRs help customers -- in effect, they look for ways to give CSRs power. And that's a great feeling, both for CSRs and for their customers.

Someone's on the phone

Businesses sometimes overlook the profit leak in call centers because they don't recognize CSRs' capacity for creating customer engagement. To every customer who calls, CSRs are the business. Many organizations worry about the costs of recruitment, technology, and, more than anything else, turnover -- as well they should. But trying to fix the problem while overlooking the human element only makes it worse. Customers are people, and they want to talk to people. Let them.

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