Transform Customer Service from a Cost Center to a Profit Center

Highlights

  • When customer support operates as a cost center the company's objective is to minimize costs. When it runs as a profit center the company's objective is to maximize investments. That difference yields a bi-polar variation in customer service operations.
  • Customer service research finds that the Best-in-Class call centers are twice as likely to be measured by their profit contribution to the company as compared to their lower performing peers.
  • Shifting from a customer service cost center to profit center make obvious sense. The path to get there is not so obvious. The 4-step cost to profit center transformation framework helps.
Johnny Grow Revenue Growth Consulting

Most company executives quietly admit their call center or customer support organization is a necessary expense that takes away from the bottom line. That makes cost management a driving force in good times, and cutbacks a reality in challenging times.

But it doesn't have to be that way. Call centers can achieve the two-fold goal of delighting customers and delivering extraordinary profits to the company.

They often have more interactions with customers than any other part of the company. Harnessing those engagements as part of a roadmap to shift customer service from a cost center to a profit center can deliver the highest profit transactions in the company and avoid a cost cutting downward spiral.

The Customer Service Excellence Report found the Best-in-Class call centers (i.e. the top 15 percent) were twice as likely to be measured by their profit contribution to the company.

Customer Service as Profit Center

While there is a broad body of knowledge suggesting that contact centers maximize performance when organized as profit models, the research shows that this often-quoted business model is less often achieved.

Making the transition starts with strategy and a change in how the company invests in customers. The research also found that the Best-in-Class service leaders allocated their budgets in a way the steered 2.6 times more investment toward existing customers than their peers.

New and Existing Customer Investment Allocation

The organization becomes a profit center when it delivers a profit. That's no easy achievement but is made easier when pursued as part of a customer service maturity model. Here are several ways to help the journey.

Customer Service is the New Growth Strategy

Call center agents are ideally suited to fulfilling high volume, low dollar sales transactions when it's most convenient for the buyer. That may be when a customer reaches out for an impulse purchase or a suggestive sale following a successful support case resolution.

And because selling to existing customers delivers shorter sales cycles, higher conversions and lower cost of sales, these sales transactions are typically the company's highest margin sales.

Revenue growth is further accelerated by improving sales effectiveness, leveraging promotions or applying customer data to identify intelligent up-sell, cross-sale or bundled offers.

For higher value or more considered purchases, the customer support representative (CSR) may uncover a selling opportunity and refer it to the sales team.

Even when CSRs don't sell company products, they can sell elevated services. Many customers are willing to pay to skip to the front of the line. Options such as express customer support, entitlements, service level agreements (SLAs), concierge and other premium services are all sources of revenue and profits.

Most customer support groups don't perform sales transactions. So, to make the journey form cost to profit center we take an alternate route to grow customer spend and contact center value.

4 Best Practices to Aid the Cost to Profit Center Transformation

Transforming the call center to a profit model requires a change in the most important goals and supporting metrics. Activity-based metrics such as Average Handling Time (AHT), First Contact Resolution (FCR), Speed of Answer (SoA) and Customer Effort Score (CES) are important but do not directly link to company revenues and contact center profits. To make the shift, the organization must also focus on revenue-based goals and measures.

There are three ways the call center can grow revenues. They can acquire more customers, sell them more products and keep them longer. That means profit is calculated by showing the contact center's financial impact to increased purchases, customer lifetime value and customer retention.

The pathway to profitability starts by knowing what customers most want, what they are willing to pay for and what it takes to meet or exceed their expectations. Customers are not homogenous so the findings should be captured by customer segment. With these customer insights the remainder of the journey is accelerated.

You then pursue a stepwise process to achieve customer satisfaction (CSAT) which creates customer loyalty. That in turn drives increased purchases which grows Customer Lifetime Value (CLV) and customer retention. Each of these results contribute to increased company revenues and contact center profits.

Customer Service Cost Center to Profit Center Metrics

4 best practices to shift customer service from a cost center to a profit center.

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1

Voice of the Customer

Only when you know what your customers most want can you aim for success. Trying to predict what customers want is a recipe for mixed results and delay. A better approach is to ask them what they want. That's why a Voice of the Customer (VoC) program is a requirement to efficiently meet customer expectations.

A VoC program captures, categorizes and prioritizes customer goals, expectations, preferences and dislikes. It also aids four important objectives.

  1. It quantifies and prioritizes customer expectations so you can adopt the specific programs that deliver on-target service at the least cost.
  2. Knowing exactly what customers want avoids investing in things that don't matter.
  3. VoC data is quite often the most valuable data to improve the company's products and services and innovate new products and services.
  4. VoC data becomes your most valuable customer intelligence when integrated with CRM software and used to deliver differentiated customer experiences. The below diagram shows how the many sources of VoC data should be integrated to the CRM customer record, update customer segments and included in the 360-degree customer view. All of these information sources contribute to the customer insights that better personalize customer communication, offers and other interactions.
Voice of the Customer Data Transformation
2

Customer Satisfaction Methods and Metrics

A Harvard Business Review post reports that Customers who had great past experiences spend 140 percent more money compared to those who had a poor experience.

Unlike sales or market share data which reflect historical results, customer satisfaction (CSAT) is a leading indicator of future purchases. CSAT directly correlates to repeat purchases, customer referrals, customer lifetime value, customer retention and brand advocacy.

CSAT is equal to the number or percentage of customers whose reported experience with your company meets or exceeds their satisfaction goals.

Customer Satisfaction Measure

Companies don't get to define how or when customer satisfaction is met or exceeded; only customers do. This fact brings us back to recognizing why any customer satisfaction improvement program begins with a Voice of the Customer program.

Efforts to improve CSAT are many and varied, but some of the programs that consistently deliver the biggest financial outcomes include adoption of customer service best practices, increasing convenience with omnichannel customer support, enabling customers to help themselves with customer self-service support or exceeding even the loftiest customer expectations with proactive customer support.

3

Customer Lifetime Value

Most companies measure customer profit, but that's another backward-looking historical metric. Customer Lifetime Value is a predictive analytic that forecasts future value.

Customer lifetime value (CLV) is the present value of the future cash flows attributed to the customer over the course of the relationship. It's an efficient and highly effective measure of the company's relationship with its customers and future revenues and profits. It also reinforces the recognition of customer relationships as assets, repositions customer focus from short-term profits to long-term lifetime relationship value, and compliments other customer-centric measures such as customer loyalty.

CLV is an influential revenue metric because even small increases multiplied by the number of customers creates large and sustained profit growth. CLV answers the essential customer support question of how much should the contact center spend to service and retain each customer. When customer value is calculated for each customer segment, the organization more accurately invests in account management and support services.

4

Customer Retention Programs

Research from Earl Sasser of Harvard Business School and Bain & Company found that increasing your customer retention rates by 5 percent can grow profits by 25-95 percent, due mostly to the two-fold effect that existing customers spend on average more than new customers and require much less costs to serve.

Bain & Company research also found that a 10 percent increase in customer retention delivers a 30 percent increase in company value.

That's why for many companies improving customer retention is the new business growth model. And that puts the contact center at the heart of the business.

Customer retention strategies increase short term profits and create a multiplier impact to long term revenue growth. Managing customer retention is an imperative to achieve a sustainable growth business.

The Bottom Line is the Top Line

One more thing. Revenues are only half the equation to build a profitable organization. Costs are the other half. That's why customer support organizations must know where to look for improved efficiencies and cost savings.

The previously referenced research report found the three factors that delivered the most significant and sustained contact center cost reductions were technology automation, business process improvement (BPI) and agent productivity.

The research also found that they are symbiotic and when pursued together, achieved greater cost reductions than when pursued individually. There's also a sequence involved with these three cost savings programs. BPI and technology (usually CRM software) are best implemented in parallel while contact center technologies are generally a prerequisite to achieving sustained improvements in agent productivity.

Finally, a cost savings opportunity which aids all three of the prior programs is to apply industry benchmarks to identify underperforming areas that when improved deliver the biggest financial upside impact.