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Benchmarks: Labor costs & productivity.

In the aggregate, the support organizations in our survey database employ 4,255 people, of whom 3,273 (77%) work as "direct support technicians" and the balance are "managers, analysts, and clerical employees" (18%) or--a new category--"employees who create or maintain online content" (5%). Except in very small support groups, where job distinctions are somewhat fuzzy, the direct labor ratio is remarkably consistent regardless of organization size: 75%-80% of support employees are involved directly with customer interaction. Moreover, this ratio has barely budged since our 1993 survey, when 79% of support employees were part of the direct labor category.

In turn, the high proportion of direct support technicians has helped keep overall payroll costs fairly low. The median cost of monthly salary and benefits for all support employees is currently $3,721; half of all support employees are paid between $2,778 to $4,861 per month. Monthly operating costs ("telephone, facilities, equipment, training, other overhead") typically add another $1,823 to payroll costs; half of all companies spend between $976 and $3,400. As a rough rule of thumb, the ratio of payroll to operating costs seems to be about 2:1. (For more detail on salaries, see the annual Softletter/ASP Tech Support Salary Survey.)

When we compare payroll and operating costs for different sizes of support organizations, an interesting bell-shaped pattern appears: Small organizations tend to have the lowest median payroll costs, perhaps because they employ relatively few highly-paid managers or analysts. At the other end of the size spectrum, big support organizations also achieve low median payroll and operating costs. The highest costs show up in mid-sized organizations:

Monthly payroll and operating costs
 Payroll Operating Direct Labor%
 & Benefits Costs
By support organization size:
25+ employees $3,806 (27 responses) $1,909 (24 responses) 78%
7-24 employees $4,286 (33 responses) $2,500 (31 responses) 79%
1-6 employees $2,800 (29 responses) $1,000 (25 responses) 82%
Median $3,721 $1,823 80%

Source: 1997 Softletter/ASP Support Cost Survey

What kind of productivity does this investment in payroll and operations produce? That's a troublesome and controversial question. According to our data, the typical support employee (including managers and clerical staff) handles a modest 100 calls and 17 letters or e-mails a month, equal to less than six customer transactions per working day. If the cost of support payroll and overhead is simply divided by the number of calls and letters, the theoretical cost of a customer transaction is a hefty $47.38.

Most support managers would insist that their employees operate at a far higher level of productivity, and there's no question that support technicians are among the hardest-working people in virtually any software company. But somehow, much of that effort now seems to be devoted to tasks--such as research, management, report generation, skill-building, web and knowledgebase development--that aren't directly related to the core job of answering customer questions. The result is constant pressure from senior management to cut costs, increase productivity, and turn over more work to outsourcing firms.

Moreover, the productivity problem is clearly an industry-wide phenomenon that affects almost every segment of our survey sample:

Monthly customer transactions per support employee
 Calls Letters & E-mail
By support organization size:
25+ employees 88 (32 responses) 5.4 (26 responses)
7-24 employees 120 (39 responses) 19 (38 responses)
1-6 employees 75 (43 responses) 20 (43 responses)
By price of best-selling product:
$1,000+ 81 (45 responses) 8.2 (42 responses)
$100-$999 125 (43 responses) 22 (41 responses)
$15-$99 100 (19 responses) 26 (18 responses)
By application category:
System software 50 (9 responses) 13 (9 responses)
or job-specific 99 (34 responses) 10 (35 responses)
tool/language 20 (8 responses) 6 (8 responses)
finance/tax 307 (6 responses) 12 (6 responses)
networking 102 (14 responses) 78 (14 responses)
General business 65 (12 responses) 17 (11 responses)
Utility 125 (7 responses) 49 (6 responses)
education 200 (17 responses) 39 (16 responses)
Median100 17

Source: 1997 Softletter/ASP Support Cost Survey
COPYRIGHT 1997 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Industry Trend or Event
Date:Jul 21, 1997
Previous Article:Benchmarks: Revenue and employment ratios.
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