Measuring the ROI of Customer Service — How to Calculate Customer Service Costs?

Poor customer service costs US companies more than $75 billion per year.

At the same time, the global customer service market is growing by billions each year. Companies have officially started to recognize the impact of customer service on business growth. But are they getting the returns? 

Companies are placing a far higher premium on investments than the measurement of costs and returns. Measuring CX returns is important to align your service with your financial goals.

Typically, the overall cost incurred in customer service is the difference between money gained and money spent. Here are the key components of customer service costs, which represent the total cost to your customer service.

Calculating Customer Service Costs, the ROI of Customer Service

  1. Staffing and Training Costs
  2. Support Channel Costs
  3. Overhead Costs
  4. Customer Loyalty Program Costs

1. Staffing and Training Costs

Cost to recruit, pay, and train support staff is one of the obvious attributes of customer service costs. Agents are the bridge that connects your business with your customers. They represent your company from the frontline, serve as the voice of your business, and shape the way your customers perceive you. From influencing an impulse purchase to turning a first-time customer into a return customer, positive first interactions between your support team and your customers can affect your bottom line directly.

Hiring the right customer service agents is essential to ensure the smooth running of the support function in the long run. But it doesn’t stop there. A lot of companies are on the fence about investing in agent training. Efficient customer service team members who are well-versed in your products and services are not hired but trained. Equip your support agents with the adequate knowledge and resources necessary to deliver customer satisfaction. 

2. Support Channel Costs

An effective customer service strategy is vital to translate your day-to-day efforts to your long-term goals. To execute a strategy, however, you need to find the right channels and tailor their functionality to your customer needs. Setting up support channels is inevitable and probably the most important cost incurred in customer service. They serve as the medium through which your customers will engage with you. To expand the scope of the engagement, it’s important to set up multiple channels for support and unify the customer experience across all channels.

Some of the widely used customer support channels and their respective functions are — helpdesk for emails, call center for voice support, chatbots for 24/7 availability, live chat and social media for instant responses, and knowledge base for self-service options. The cost to configure any or all of these channels is incurred towards hiring and training agents, purchasing software, and integrating the communication across channels. In due course, companies invest in business intelligence software to track their customer service gains and gaps. 

3. Overhead Costs

Overhead costs typically mean operational costs incurred in office space, contact center outsourcing, equipment, telephone bills, travel expenses, maintenance, supplies, and so on. Any direct costs such as direct labor and cost to create or build a product don’t come under overhead costs. Especially in functions like customer support, indirect costs can largely affect your bottom line. With the application of effective cost metrics without affecting the quality of customer service, you can gain control over overall customer support costs. 

4.Customer Loyalty Program Costs

Loyalty programs involve incentivizing customer loyalty as a means to encourage them to continue doing business with you. Although not mandatory, customer loyalty program costs will be the best penny you will ever spend on customer service. Happy customers are an asset to your business.

The cost of acquiring a new customer is five times more than the cost of retaining an existing customer.

As per this data, increasing customer retention by 5% through loyalty programs and customer feedback can increase your profitability by 25 – 95 %. The difference between incremental costs and incremental revenue is your loyalty program costs.

Conclusion

Customer service is the cost center of your business. With proper spend analysis, you can reduce your customer service costs and promote revenue growth. Sign up for a HappyFox demo to learn the attributes of good customer service from our product experts!

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