Cost Analysis of Outsourcing: What Really Determines the Price?

Outsourcing customer service to an external contact center provider can deliver numerous advantages. With their specialized expertise, industry knowledge, and advanced infrastructure, contact center companies are capable of providing top-notch customer support. Additionally, an outsourcing firm offers the flexibility and scalability necessary to adapt customer service to changing demands and workloads.

When selecting an outsourcing partner, it is essential to understand the cost structure of such services and the factors that influence pricing. The price is shaped by various elements, including the employment model of the agents and the type of services offered.

In this article, we will explore these factors in depth, offering insights into what to consider when evaluating the pricing of outsourcing providers, what to expect in service rates, and how to effectively manage costs.

Factors Influencing the Cost of Outsourcing Services

Employment Forms and Incentive Systems

The form of employment and the incentive systems in place significantly impact the final cost of outsourcing services. In Poland, the most common forms of employment are employment contracts (umowa o pracę) and order contract (umowa zlecenie). Each has its pros and cons, and the choice of the appropriate type should be based on the specific needs of the projects being carried out.

An employment contract offers greater stability and job security but does not provide the same level of flexibility as a mandate contract. The latter allows for adjusting schedules to the current project needs and enables quick responses to increasing or decreasing project scale. However, it requires training a team that is 20-25% larger to ensure this flexibility and maintain high service level (SL) indicators.

Equally important is the incentive system, which motivates agentss and encourages them to achieve better results. It is important to remember, though, that while it increases motivation and KPI achievements, it also raises the overall cost of the project.

Labor Cost Structure

Below is a comparison of the employment costs associated with mandate contracts (umowa zlecenie) and full-time employment contracts (umowa o pracę), considering the following assumptions:

The team is composed of 30% students and 70% employees with full social security contributions (ZUS).
The cost of productive hours increases by 5% during quality assurance activities.
The incentive system accounts for approximately 20% of the base salary.
The costs associated with full-time employment contracts include paid leave and sick leave.
It’s important to note that legal requirements such as holiday work, overtime, and night shift premiums also contribute to additional project costs.

Type of Services

The base rate covers tasks that do not require specialized knowledge or education. Depending on the industry and project needs, additional skills may be necessary.

For instance, helpdesk services may require specialized technical knowledge, cosmetic hotlines may need advice from dermatologists, and sales-oriented projects may demand specific agents skills and consistently high motivation.

Language of Service

The language of service plays a significant role in the costs of contact center projects. It requires additional investments in recruitment, training, maintaining operational flexibility, and quality control. Additionally, individuals proficient in foreign languages often expect higher compensation.

Compensation varies based on the language used and the level of proficiency. Significantly higher costs are associated with niche languages from smaller or more distant countries, which are less commonly taught and often in high demand in Poland.

The most popular languages, such as English and Ukrainian, typically cost only a few percent more than services provided in Polish. However, other language groups can increase costs by several dozen percent.

Working Hours

Working hours are also a critical factor—weekend shifts, holiday work, and night shifts may require additional financial compensation.

Location

Contact center operations are typically located in major cities, providing easier access to a large pool of candidates with diverse skills.

Offices located in strategic, well-connected areas facilitate easier recruitment and contribute to higher employee satisfaction. However, location does not significantly impact the pricing of contact center services, even when considering remote work.

While remote work may seem to lower office space costs, it requires additional resources for support and monitoring. Outsourcing companies often maintain physical offices to provide a workspace for employees who do not meet performance standards or encounter quality issues.

One indirect factor is the necessity of on-site work, which can currently limit the availability of potential candidates. Additionally, the cost of on-site training increases due to travel requirements.

Additional Costs

These costs may arise from the purchase of additional equipment, such as hardware, software, Microsoft Office packages, AI-based solutions, dedicated telecommunication lines, specialized office space, and security measures like office monitoring cameras.

What to Expect in the Service Package

When outsourcing customer service to a contact center, clients have the right to expect a comprehensive service that meets their needs and delivers tangible benefits.

Key elements that contribute to a successful partnership include:

Regular monitoring: the ability to consistently track the performance, efficiency, and quality of contact center services through access to a variety of reports. This enables data analysis and process optimization, leading to improved customer service and enhanced market competitiveness.
Business review meetings: regular meetings to discuss current results and explore ideas for process optimization and development.
Open and transparent communication: maintaining clear and open lines of communication to quickly address ongoing challenges, avoid misunderstandings, and achieve shared goals.
Process optimization recommendations: providing expert advice on optimizing customer service processes.
Knowledge sharing: sharing insights on modern solutions, market benchmarks, and best practices to continually improve service quality.

How to Optimize Costs and What Are the Potential Consequences?

Hiring Students

One common method of cost optimization is the decision to hire primarily or exclusively students, as their hourly wages are typically lower for employers compared to those of experienced agentss. However, there are several important factors to consider:

a) High turnover

Students often change jobs due to the demanding nature of their academic schedules and other commitments.
The average tenure of a student agents is shorter (6-7 months) compared to individuals who view their role at the contact center as their primary occupation.
High turnover can disrupt customer service continuity and necessitate frequent training of new hires, which generates additional costs and time.
Continuously bringing new students into the team can affect service quality, as new employees require time to acquire the necessary knowledge and experience in customer service standards.

b) Limited availability

Due to the need to balance work with their studies, students typically have lower availability.
The average monthly working hours for students range from 110-120, compared to 140-160 hours for those with full availability.
Fewer working hours per person necessitate the provision of more CRM and call center software licenses, training, equipment, and a larger management team to supervise a greater number of employees.
Limited working hours may also extend the time it takes for students to achieve a satisfactory level of customer service quality.

c) Additional costs

Frequent training of new employees incurs additional expenses.
Providing more software licenses, equipment, and resources to accommodate smaller work schedules leads to increased costs.
The need to hire additional management staff to oversee a larger number of students also contributes to higher expenses.

In conclusion, hiring students can result in cost savings and provide flexibility, but it also carries risks such as high turnover, lower availability, and increased training costs. On the other hand, employing individuals with full availability offers greater security, stability, and often higher customer service quality.

A recommended approach is a mixed model that combines the advantages of both solutions. It is important to carefully analyze the specific needs of the project and, if possible, determine the appropriate balance to maximize benefits and minimize risks.

Implementation of AI Bots

Implementing AI-powered bots can significantly contribute to cost optimization in contact centers. These solutions offer numerous benefits that lead to savings and increased efficiency.

Automation of simple processes: AI bots can handle repetitive and straightforward customer inquiries, such as checking order status, tracking shipments, or answering frequently asked questions (FAQs). This frees up human agents from mundane tasks, allowing them to focus on more complex issues that require human intervention.
Reduced wait times: with bots available instantly, customers no longer have to wait in queues to speak with an agent. Quick handling of simpler issues by bots reduces wait times and customer frustration while also lowering the costs associated with maintaining a helpline.
Scalability: AI bots can manage multiple customer interactions simultaneously, which is especially valuable during peak traffic periods. This allows companies to efficiently scale customer service operations without the need to hire additional agents, resulting in significant cost savings.
24/7 availability: Bots operate around the clock, providing customers with assistance at any time of day or night. This is particularly important for global businesses, where customers from different time zones may require support outside of standard business hours.

While AI-driven contact center support offers a range of benefits, it’s important to remember that implementing bots also comes with certain challenges.

The key to success lies in finding the right balance between automation and human customer service. A hybrid model that combines AI bots with a traditional team of agents tends to deliver optimal performance, high quality, and customer satisfaction.

Office Work and Remote Work

The job market is evolving rapidly, and more companies are moving away from traditional office setups in favor of remote work. While this model can significantly reduce costs related to renting and maintaining office space, it also brings various risks, including potential declines in service quality, such as reduced team motivation, difficulty maintaining focus during extended training sessions, lack of face-to-face communication, and technical issues.

A Hybrid Compromise

The hybrid work model, which combines the flexibility of remote work with the advantages of working in an office, seems to be the optimal approach. It offers the following benefits:

Effective in-office training: training conducted in the office facilitates better interaction and knowledge exchange among employees, leading to quicker acquisition of new skills. This is especially important during lengthy training programs that prepare employees for customer service roles.
Onboarding new agents in the office: the initial weeks spent working in the office help new employees integrate more easily with the team and accelerate their learning process. Direct support from team leaders and trainers is crucial for achieving efficiency and quality in task execution.
Rotational WFO and WFH model: a hybrid approach that alternates between working from the office (WFO) and working from home (WFH) within specific timeframes allows for the optimization of efficiency, flexibility, and quality.
Maintaining high team motivation: in cases where quality or efficiency metrics decline, a return to office work is recommended. This enables the quick identification of issues and the implementation of corrective measures.

Summary

Reducing costs in a contact center is a goal for many companies, but it should not come at the expense of service quality. The key to success lies in finding the right balance between cost savings and maintaining high-quality customer service. Investing in service quality and customer experience builds a positive brand reputation and contributes to long-term success, even with a limited budget. The best optimization strategy depends on the specific project, industry, and individual needs of the company.

Author: Ewa Depta, CSO & Board Member, OEX VCC.