Cost-Per-Order Rates Matter More Than Size

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Question: Which of the following call centers represents the better investment for a DRTV marketer?


A) Call Center A has 800 seats and charges $1.40 per call.


B) Call Center B has 200 seats and charges $1.80 per call.


Answer: It's impossible to tell from the information given.


On the surface, it appears that Call Center A, the larger of the two choices, has the capacity to handle any campaign, while its cost per call seems to be more competitive.


But what if Call Center A is only able to close 20 percent of the selling opportunities it receives? That means that for every 100 calls generated to that center, only 20 result in sales. The effective cost per order, not including setup and training, for Call Center A would be $7 (one in five calls).


Call Center B, on the other hand, closes 70 percent of the selling opportunities it receives. Out of every 100 calls, they make sales to 70 people, yielding an effective cost per order of about $2.50, almost one-third the cost per order of Call Center A.


The ability of a call center to close a sale makes all the difference and demonstrates how surface comparisons -- such as cost-per-call rates and call-center size -- are not always reliable in evaluating call centers. At the end of the day, the only true gauge of your investment is throughput, or cost per order.


Capacity Is Important, but ...


A surface comparison of third-party call centers usually favors large call centers, especially for DRTV and infomercial marketers. The conventional wisdom has been that the more bodies in a call center, the greater capacity to handle the surges in inbound calls these types of campaigns usually produce. Capacity certainly is important.


However, capacity relates directly to the demand for seats, which is driven by the amount of media exposure for a DRTV spot or infomercial. A spot that airs heavily is likely to generate a higher volume of calls, but it is possible to scale media schedules to the number and size of call centers used, particularly when more than one telemarketing firm is being used for testing purposes.


For example, if one DRTV spot directs calls to a 100-seat center and five spots direct calls to a 300-seat center, it's likely that the 100-seat center will block fewer calls.


A call center's capacity means more than the number of bodies present to answer the phone. It also means capability of the persons responding to the calls. In shared-call environments, typical training of telephone sales representatives is limited to how to read scripts from the computer. There are minimal opportunities to customize sales presentations; if the response is not on the computer screen, it's not in the operator's head.


The limited ability of large call centers to customize a sales presentation is a reflection of the kind of people hired, the training and the management of the call center.


Today, there is growing evidence that smaller call centers are better able to staff, train and manage call reps than the massive and often impersonal centers. Further, today's computer telephony advances make it possible and cost-effective to build and outfit smaller- and medium-sized call centers with the most technologically advanced equipment available.


While blockage is an issue for DRTV marketers, using a huge call center does not necessarily guarantee that blockage will be minimized. Smaller centers may demonstrate a better response record and in many cases, a better sales ratio. Until DRTV marketers begin to demand phone reports on phone company letterhead, they will have a difficult time evaluating the percent of calls blocked at their call centers.


Cost Per Call May Not Be Relevant


The price a DRTV marketer is charged for each call the center takes is a measurement of only one thing: the number of calls the center took. It does not directly relate to the capability of the call center personnel to produce sales.


With media costs escalating, most DRTV and infomercial marketers need to be assured that the media schedule results in the most sales possible. Cost-per-order rates are more relevant to measuring a call center's performance.


Because smaller call centers operate in a more controlled and responsive environment, they may also offer better cost-per-order rates. They also tend to devote more time to training and management of sales reps. For these reasons, smaller call centers are beginning to demonstrate better results for higher-priced items.


Selling products for more than $100 for example, often requires more salesmanship than simple order-taking. It requires a full understanding of the product and the ability to effectively convey the knowledge to the consumer and answer questions.


Consumers who are considering expensive purchases have a wide range of questions, and they deserve honest, well-reasoned responses if we expect them to buy. It is easier to train reps to be responsive to these types of inquiries at a smaller center. A marketer of higher-priced goods, including "up-sells" of other products, may find that a smaller call center performs better than a large one.


In evaluating a call center's prices, it's important to remember that telemarketing service agencies usually base charges on the cost of handling the call, but this method of pricing has little or nothing to do with anticipated results. It is up to the marketer to gauge the value of the services and evaluate the price accordingly.


Evaluating Cost-Effective Orders


Other aspects about a call center should be determined before beginning a relationship.


First, it's important to find out how the call center evaluates success, remembering that the cost-per-order rate is the only true measure of performance. If the call center is not constantly working for an effective cost per order, it may not be concentrating on selling your products as much as you would like.


Second, it's also important to check references. If the call center has a good track record of producing effective cost-per-order ratios, their clients will tell you.


Third, conduct a test with the call center by airing a spot that has a good track record. Given equal training weight, it will be easy to make a comparison between several call centers.


Finally, it's important to track cost-per-order rates on all marketing campaigns. By constantly monitoring these rates, it's possible to continually improve an investment in call center services.


David VanDerveer is president and CEO of TSI, a teleservices firm in Lansing, MI.
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