And the Margin that Customer Service Impacts Your Net Profit.
In, The State of the Ecommerce Customer Service Industry Report for 2019, we found that a surprising 79% of respondents do not know the cost of a support ticket on the company.
This is quite scary, as this metric helps define the overall profitability of the product, and set reinvestment schedules for the growth of your company.
If costs overtake margin, you lose money with every sale.
While the Gorgias mission is to turn customer service from a cost center into a revenue generator, we do need to acknowledge the raw costs of customer support in order to bake it into our calculation of margin.
What metrics are we going to cover:
- Cost per support ticket.
- Cost per order.
- Cost per revenue.
Why should you track these metric?
- It helps baseline your opportunity for growth and profitability.
- You can make concerted efforts to lower your cost with customer service improvements.
- You can track indicators that something is going wrong with your business, and may require extra attention from the Head of Ecommerce or COO.
- You can hold your head of customer service accountable for staying within appropriate margins, and incentivize them accordingly.
Now, let’s get into it…
Step 1: Calculate your Cost Per Ticket
Here’s the data you need to collect:
Total cost of customer service. This includes technology, employees, managers, office space, equipment, travel… Everything. This should be easy to calculate if your accounting department is doing their job; they should be able to just hand you over a number. A monthly breakdown of the trailing 12 months is best.
Tickets per month. This can be found in your Gorgias dashboard under “Statistics.
Be sure to set the dates to match appropriately:
Now that we have these two numbers, we can get an understanding of our cost per support ticket.
Simply divide: In this example, we’ve got 1651 tickets in December. We spent ~$4500 on customer service. Therefore each ticket costs us $2.73.
Knowing your average cost per ticket helps you understand the time and value behind resolving customer inquiries. If this number goes up, then you’re inquiries are getting more complex - its either taking more time or more people to answer the same number of questions.
If you ever see this number spike, it’s likely due to a flaw in your product design. Immediately begin looking for commonalities among tickets, inspecting your inventory, and trying to get to the root of the problem before you make even more customers unhappy.
Step 2: Calculate Your Support Cost Per Order
Next up, you need to know your support cost per order, in order to bake customer support into your margin.
Here’s the data you need to collect:
- Orders per month.
To find this, simply log in to your Shopify dashboard, go to Orders, and add in a couple filters:
You can then “select all” and it will tell you the count of orders. For additional accuracy, you may want completed orders, not including refunds or other issues.
For our example month, we placed 2621 orders. That gives us a cost per order of $1.73
According to our Ecommerce Customer Service data, we estimate that small stores will see 88 support tickets per 100 orders, or roughly 1.1 support tickets for every $100 in revenue.
While large stores, with over $500k revenue/month, will see only 56 support tickets per month and .4 support tickets per every $100 in revenue.
How does your support cost per order compare with these benchmarks? Let us know in the comments below.
Calculate Your Cost Per Revenue
Sometimes it's helpful to calculate your cost per revenue as well, which is simply grabbing your net sales number from Shopify and dividing by tickets.
Data you need to collect:
Revenue.
Step 3: Consult with COO / Head of Ecommerce
You were previously calculating your margin without including the cost of support…
Even though support drives customer satisfaction, retention, and, in some cases, sales, it also has a clear impact on margin.
How does this new metric affect your COGS? Your margin?
If your average order value is $50, with a $13 margin, you now have only a $11.27 margin.
How does that affect your advertising objectives?
How does it affect your ability to invest into product research?
What can you do to improve your cost per order?
A lot. Mostly, this is called: ticket mitigation.
Here’s some of the more common opportunities:
- Updating your FAQ page.
- Improving your product detail pages.
- Video explainers.
- Onboarding videos.
- Educational retargeting campaigns,
- Stricter / more clear checkout processes.
- Improved notification emails to users.
- Faster shipping.
- Implementing new channels like SMS, on-site chat, or phone.
Final Thoughts
When you hire a new support agent, or manager, you will see your costs go up.
This is the nature of business: you’re investing in a new hire with the expectation that there will be more demand for them to fulfil.
You’re job, as an operations manager, head of Ecommerce, or COO, is to make sure those costs don’t get out of control while you look to scale your business.
Figure out what margins are acceptable to you and invest in growth cautiously. We’ve seen all too many companies fail because they oversupply and hit stretches of low demand.
That being said, if the business has healthy cashflow, and reasonable growth, I’d invest more in customer service before upping my ad budget.
It takes time to onboard new agents, and if you don’t have someone matching that demand, you’re creating unhappy customers, which is a surefire way to eat your margins even faster.
