Contact Centers: Cost Centers or Profit Centers?

By Alexandra Warner, Platform28 on January 14, 2014

Business jargon can sometimes be fairly obscure, but cost center and profit center are examples of terms that say what they mean. Here, cost center is defined and contrasted with profit center this way:

Cost Center: A department within an organization that does not directly add to profit, but which still costs an organization money to operate. Cost centers only contribute to a company’s profitability indirectly, unlike a profit center which contributes to profitability directly through its actions. This type of department is likely to be one of the first targets for downsizing because, on the surface, it has a negative impact on profits. Source: Investopedia.

Given the choice, being in charge of a profit center within an organization might be more appealing than managing a cost center. Business likes profit. It’s the name of the game.  Contributing to a company’s profitability indirectly doesn’t have the same zing as contributing to it through action.

But can a business operate without cost centers? In a recent Forbes article, “Be A Hero:  Turn A Cost Center Into A Profit Center,” Larry Myler offered this example of the necessity of a cost center in an enterprise:

“…HR is commonly considered to be a cost center because it doesn’t directly generate revenue, but try removing the HR staff and watch what happens to basic business functions such as hiring, firing, training, compliance and the like. In short order the entire company would degenerate to the point of organizational death. No matter how strongly other so-called profit centers had been performing, they would soon cease to do so.”

Without human resources, marketing, research and development, customer service, etc., business grinds to a halt.

Historically, contact centers, particularly those focusing primarily or exclusively on customer service, have been viewed as cost centers. Expenditures on staffing, technology, facilities, and overhead may surpass any revenue generated. But customer service is not an optional offering in today’s world. The contact center can be, and ideally is, an asset in strengthening the customer/company relationship, or in business terms, increasing customer lifetime value.

According to the definition at the beginning of this blog, cost centers only contribute to a company’s profitability indirectly. The unique and essential, albeit indirect, contributions provided by the contact center can be found in the article, “Center of Attention,” Deloitte Contact Center Strategy and Processes by Deloitte Consulting, LLP:

“Is the contact center just a cost center? Not if customer loyalty, retention and wallet share matter. In every industry, customers base their opinions about a company on the way they’re treated. Unlike other touch points such as advertising and channel partner relationships, the contact center gives companies a live, direct, two-way voice in that process. But senior executives may be too far removed from these moments of truth to appreciate the ways contact center service can align to, support – or contradict – the corporate strategy.”

An appreciation of the importance of customer service management to the bottom line makes the value of the contact center more compelling. If, as in the scenario in the Deloitte article, senior executives do not attach enough importance to the value inherent in developing world-class customer service, Garry Schultz, author of “The Customer Care and Contact Center Handbook” (2002), has these suggestions:

“If at all possible do not structure the contact center purely as a cost center. If the business model is such that support is gratis and there is no direct revenue, then find a way to assign monetary value to customer satisfaction. Alternatively, arrange a system of charges to internal departments per support event.

Traditional revenue streams for contact centers include maintenance contracts, upgrade programs, and up-sell programs. Billing events could be driven by fixed fee per support event, fee-based on length of contact, or a flat fee for all support events regardless of length. Less tangible revenue streams include customer satisfaction value and customer retention value.”

Such a quantitative approach to defining value in the contact center may not always be feasible, but it certainly is thought-provoking.

In upcoming weeks, we will explore other aspects of the shifting perception of the contact center as cost center and/or profit center.

About the Author: Alexandra Warner is the VP of Marketing at Platform28, a robust Communications-as-a-Service provider for the enterprise. Since 2001, Platform28 has been helping government agencies, enterprise and US Tier 1 carriers streamline their communications, drive business efficiency, and deliver an excellent customer experience.