Introduction

The role of prompt, result-driven and empathetic customer service in shaping brand perception and building long-term relationships hardly needs an introduction. 

According to the Journal of Consumer Research, studies show that 90% of consumers expect immediate responses to their inquiries, and companies that meet these expectations see significant improvements in brand perception and customer satisfaction​. 

However, customer service leaders face unrelenting pressure to deliver more value to customers while reducing costs to the business. Here’s where getting the customer support calculation right and using strategies to optimize the cost becomes necessary. 

Reducing costs also requires a comprehensive understanding of a customer service unit's P&L. This equips leaders to understand the nuances of different cost verticals and helps them design their cost optimization strategy.

In this article, we go through the various costs associated with building a robust customer support system and highlight proven customer service cost optimization strategies.

Why is Calculating Customer Support Costs Important?

Here’s how calculating customer service costs helps you identify gaps and fix them early on:

1. Effectively align the resources needed

With costs at hand, business leaders can gauge their support human resources sufficiency better. This helps avoid overinvesting or underinvesting and guarantees that you do not have SLA breaches. 

This strategic approach minimizes expenses such as workforce and onboarding costs and improves the overall effectiveness of customer support operations.

2. Streamline the overall process and improve efficiency

Identifying areas suitable for automation or efficiency improvements through software or enhanced employee training is key to reducing customer service costs. This leads to happier customers due to faster response times and improved issue resolution, boosting your team's productivity. 

Ultimately, this translates to increased customer loyalty and repeat business, all while optimizing your operational budget.

3. Make faster decisions to identify investments

Knowing how much customer service costs early on, instead of being an afterthought, helps you make quick decisions about whether to invest in a particular technology or downsize the investment. 

For example, you’re spending way more on legacy software in terms of yearly renewal and maintenance costs, and the learning curve is so high that your agents are not using it to its full potential. Instead, you could move to new-age software with pay-as-you-go pricing to make it more viable and show the ROI to your stakeholders. 

How to Calculate Customer Service Costs?

The total customer service cost can be divided into three parts:

1. Workforce cost

This is defined as the cost of employees, their salaries, benefits, onboarding, IT and training, and any additional costs associated with your customer support team. 

For organizations with a well-established customer service department, workforce costs are higher than software and hardware costs. 

2. Operational cost

For your customer support employees to diligently resolve endless customer tickets, there has to be a robust infrastructure supporting them. Everything comes under operational costs, including rent, equipment costs, and software licenses. 

Some companies also offload these costs by hiring outsourcing partners. However, remember that outsourcing comes with the burden of limited accountability and limited process control.

3. Customer churn cost

Ineffective customer service can drive customers away, resulting in lost revenue and additional expenses to acquire new customers. These hidden costs can significantly impact your bottom line. Investing in quality customer support can not only retain valuable customers but also save you money in the long run.

It is often the case that some of the above costs are shared between different teams.

If you are in a dilemma of whether a cost head should be included, this LinkedIn post from the Senior Director of Sun Country Airlines guides you on how to approach this: 

Industry Customer Service Cost Benchmarks

Here are some customer service cost benchmarks across large (greater than $100M ARR), medium ($10M to $100M ARR) and small(less than $10M ARR) companies that you can use to compare your company costs. The segments are identified to normalize the economies of scale and the stage of the company.

• Large-sized companies: 39% of them have customer service team costs 5% or lower than their ARR.
• Medium-sized companies: 22% of them have customer service team costs in 5% to 10% range and 35% have them controlled under 5% of their ARR. 
• Small-sized companies: The percentage of companies are uniformly distributed across from >30% to <5% of ARR except having 25% companies lying in 15% to 10% ARR range.

As per a study in 2021, below is the average breakdown of the customer service desk costs worldwide in 2021. The study also highlighted that the breakdown remained relatively consistent from country to country and region to region

Important KPIs for optimizing customer service costs

Now that we know the different customer service cost functions, let’s look at the customer service examples and KPIs you can use to optimize costs:

Cost per support ticket

The cost per support ticket tells you how much you spend per customer query. This metric gives an overview of the complete support function and helps you gauge cost optimization results. 

To find the cost per support ticket, use this formula

Total customer support spending/ Number of tickets = Cost of support per ticket 

Total customer support spending includes all the costs like rent, maintenance, payroll, and software licensing fees.

For example, if you spent $3200 on 1000 tickets, your cost/ticket becomes $3.2. This can become your go-to metric to take product or hiring-related decisions with holistic understanding of the impact on margins. You can further deep dive into this metric by understanding if there are specific clients or geographies with high cost/ticket driving this.    

A study finds the below channel wise cost metrics for the North American market in 2021. It shows that the cost of self-help channel is on average 8X better than voice or chat based channels.

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Cost of support per order

Calculating customer service costs requires taking into account both acquisition and retention expenses. A portion of every dollar spent on acquiring new customers is necessary to retain them, emphasizing the importance of accounting for retention and support costs.

To calculate the cost of support per order, use this formula:

Total customer support spend/number of orders = cost of support per order

A high support cost per order can be a red flag, indicating potential inefficiencies in your support team’s workload. This situation requires an immediate review of your internal processes to streamline operations.

Cost per revenue

Calculating customer support costs relative to revenue helps determine whether support costs are justified and sustainable for your company.

To calculate the cost per revenue, use this formula: 

Net sales/ Total Number Of Tickets = Cost Per Revenue

Strategies to Reduce Customer Service Costs

Customer self-service options

Chatbots are one of the most reliable ways to meet customers’ needs 24/7. Without heavily investing in a team to be always available, you can leverage an AI-driven chatbot and enable customers to self-service as required. 

Chatbots automate customer resolutions enhancing your capability to cater to a large ticketing volume with a small team size, resulting in lower overall customer support costs.

Plivo CX offers an intuitive chatbot developed in partnership with OpenAI. It ensures your customer support remains state-of-the-art. With no coding required, you can build your AI chatbot in minutes and train it using only the selected content, ensuring accuracy and relevance. 

Besides, you can also enhance your customer service efficiency with our fully customizable voice IVR. Allow callers to self-select options for quicker routing, reducing wait times. Personalize the customer experience by using customer data in greetings and voice prompts.

Omnichannel customer support

Let your customers contact your support team via their preferred channels. An omnichannel customer support platform like Plivo CX provides a unified agent desktop with real-time support across channels, including AI-powered live chat, voice, SMS, email, and WhatsApp. 

This eliminates the need to switch between different applications. Service agents can quickly get all the context-building customer information in a single window. 

Agent training

Plivo CX’s metrics and reporting feature has live agent dashboards to reskill your customer service team and historical reports for in-depth insight and agent coaching. Some of the standout coaching features that help you reduce customer service costs are call recording, call barge and whisper, and CSAT collection. 

Customizable workflows

With drag-and-drop workflows, you can simplify your processes and boost efficiency. Customer service teams can quickly configure and automate complex customer journeys, drastically reducing the time and effort required for setup and management. The workflows can also be integrated with homegrown systems.

How Do You Calculate the ROI of Customer Support?

Customer support linked upsells and cross-sells

Find out how many upsells and cross-sells have happened after a customer support touchpoint within a desired timeframe to gauge the revenue generated from this activity. 

However, you might need a well-integrated backend system to accurately monitor upsell and cross-sell data. 

Once you have the data, apply this formula:

ROI = (Revenue from upsells and cross-sells - Customer support costs) / Customer support costs * 100

This formula gives you a percentage representing your customer support’s ROI. It shows if your investment in customer support is worth it.

Retention

Another way to estimate ROI is to find how the customer support team influenced an existing customer's decision to renew the service. Retention is a long-term metric that varies from company to company. 

Once you have your retention metric defined, apply this formula:

ROI = (Revenue from renewals - Customer support costs) / Customer support costs * 100

A higher ROI indicates lower churn rates, which directly reflect the impact of your actions on customer loyalty. It shows how your customer service efforts contribute to customer retention and revenue growth.

Indirect returns

While the above two methods discuss direct ways of measuring ROI estimates, the customer support team also brings some benefits that are hard to quantify. 

For product and marketing teams, customer support teams serve as the first point of contact to understand customer pain points. This feedback is essential for continuous product development and impacts the overall customer experience.

Here are some questions to help measure these indirect benefits:

• How many bugs did customers report?
• How many customer-suggested features were added?
• How many sales leads from support interactions were converted?

Though these numbers are challenging to track, they are vital for understanding the ROI of customer support.

Enhancing the Overall Value of Business Through Customer Support

Undoubtedly, it is challenging for leaders to balance exceptional customer service and cost optimization. However, understanding cost structures and reviewing KPIs and ROI of support functions can hedge cost components and secure business growth.

As a proper omnichannel customer service solution, Plivo CX can help you reduce your customer service costs while maximizing customer experience as you can drive a seamless experience across channels, create several touchpoints with customers, and empathetically interact with them 24/7. 

It also leverages Plivo’s award-winning carrier network so that you can deliver top-notch services across the globe, on the channels your customers prefer. 

To learn more, book a demo.