Thinking about scaling up your customer support team? While this is a great decision, there might be a number of things on your mind. From setting up the infrastructure to hiring agents, your decision will likely be based on a number of different metrics, both long and short term. However, among the many fixed and variable costs of producing and marketing your product is the cost of customer support. It can profoundly impact your margins as customer support requires ongoing investment as your business grows and more customers come your way.
So, how much does it cost you to respond to a customer query over chat, email or phone call? Assuming that it takes 10 to 20 minutes per ticket, you may be looking at a substantial part of revenues that is spent on customer support. Some experts put the figure as high as 10-15%. To make sure that your customer support costs are sustainable, you would need to consider it as not just overhead but a part of the final cost of producing and marketing your product.
Estimating the True Costs of Customer Support
You have to think about how much it costs to support customer emails per order, per revenue and per ticket. This can help you figure out how many agents you would need per customer and make better choices in terms of scaling your business and reducing customer churn.
That said, you will need to make changes over a period of time. However, by knowing which metrics to focus on, you will be much better placed to justify spending on customer support:
Here is how you can calculate the true cost of customer support:
Cost per support ticket
To know what it costs you to answer customer calls, emails or messages, you would need to look at the total monthly investment required for setting up and maintaining office equipment like computers and software as well as the cost of hiring, training, and replacing support representatives. According to the global benchmarking database, MetricNet, hiring and training accounts for the biggest share of per ticket support costs for companies in North America.
Calculating cost per support ticket is fairly simple. Add up all the fixed costs you would have incurred in terms of payroll, maintenance and software licensing fees. Next, add up the total tickets that would have been serviced per month over the last year.
Therefore, the simple formula for calculating customer support cost per ticket would be:
Customer support spend/number of tickets = Cost of support per ticket
For example, if you spent $5000 on customer support in August 2019 and managed to support 1600 customers, your cost per interaction would come to $3.12. This can help you allocate enough funds for your customer support team while understanding the impact on margins. Also, notice if the Average Handle Time (AHT) for your support team as a whole has been increasing. If yes, it is time to do a deep dive to understand what is driving this.
This invariably points to a need for hiring more agents, creating new Knowledge Base content or bringing in a reliable outsourced customer support provider.
Cost of support per order
For every dollar you make on a sale, you would have to spend a certain percentage on customer support. That is why, factoring support costs into the selling price can give you a more accurate picture of your actual revenue. This can easily get overlooked as most online businesses tend to focus more on immediate costs such as shipping, marketing and transaction processing.
As in the previous example, calculate the total number of orders for August 2019 and divide by the amount you spent on customer support that month. This will give you the support cost on a per order basis.
So, the formula would be:
Customer support spend/number of orders = Cost of support per order
For every purchase worth $100, e-commerce stores end up supporting 1.1 tickets, according to a study by Gorgias, an e-commerce technology firm. Make sure your support costs are justifiable compared to the margin you expect. If your cost of support per order is on the higher side, your support team is probably spending too much time on handling routine customer queries or the complexity of queries is increasing. This calls for a comprehensive review of your internal processes to identify procedures that have been made redundant.
You can also train your agents to be mindful of the lifetime value of a customer to decide whether to approve chargebacks or credits.
Cost of support per revenue
Also, you can divide the number of net sales by support tickets to arrive at the cost per revenue. This will help you understand whether the overall cost of support, after accounting for returns, allowances and discounts on sales, is within acceptable limits.
So, the formula here is:
Net sales/ number of tickets = cost of support per revenue
Why is calculating customer support cost important?
Customer support costs can help you find the true cost of goods sold that would have been otherwise obscured by logistics, marketing and other costs. It helps you find the break-even point with respect to customer acquisition and lifetime costs. Without accounting for customer support costs, you may end up expanding your support team without first having the financial latitude for doing so. By tracking customer support costs on a monthly or quarterly basis, you can take better business decisions for ensuring long term growth.
Customer support is not just an obligation but can be leveraged to enhance your customers’ post-purchase experience with your brand. Instead of cutting down on support to bring operating costs under control, consider bringing in a strategic outsourced customer support provider who can help you fill the gaps in coverage.
Helplama is an outsourced customer support provider that specializes in helping small businesses get greater value for their customer support dollars. Our zero-risk guarantee has you covered, in case you are concerned about how much money you’re spending versus the cost of working with us. Contact us today for more information!