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Benchmarks: Revenue and employment ratios.

For top management, the single most popular support cost benchmark tends to be the ratio of support spending to total company revenue. Unlike call statistics, productivity and output measures, and other benchmarks, the support cost ratio ties directly to the company's bottom line and allows easy comparisons with other corporate spending areas, such as R&D and marketing.

Especially in smaller companies, however, support reps often handle software testing, customer service, documentation, training, and MIS functions that aren't directly related to answering questions from customers. As a result, the cost ratio for tech support may be inflated, and the support department's performance is likely to compare poorly against industry benchmarks.

There are similar problems with using employment ratios (the percentage of a company's workforce dedicated to tech support) for comparing levels of support spending. One interesting conclusion from our data, however, is that headcount ratios seem to be much less variable than revenue ratios: Support employment represents 15% (median) of total company employment for most of the companies in our sample, regardless of company revenues, the size of the support group, or the price of the company's flagship product. A few wider variations in employment ratios do show up in our breakouts by application category, but these are probably a reflection of the small sample size (6-7 respondents) of these categories.* Here's how support costs and headcount compare to total revenues and employment for our 1997 universe of companies:

Support cost and headcount ratios
 Support Cost % Support Employee %
By company size:
$10+ million 5.0% (54 responses) 12.0%(52 responses)
$5-$10 million 8.5% (20 responses) 17.5% (20 responses)
$1-$5 million 15.0% (26 responses) 20.0% (26 responses)
Under $1 million 10.0% (11 responses) 20.0% (9 responses)
By support organization size:
25+ employees 8.0% (33 responses) 14.0%(35 responses)
7-24 employees 7.5% (39 responses) 15.5% (40 responses)
1-6 employees 10.0% (42 responses) 14.5% (40 responses)
By price of best-selling product:
$1,000+ 11.5% (44 responses) 14.0%(47 responses)
$100-$999 7.5% (40 responses) 14.5% (38 responses)
$15-$9 95.0% (26 responses) 15.0% (26 responses)
By application category:
System software 15.0% (7 responses) 15.0%(9 responses)
Vertical/industry- 12.0% (39 responses) 19.0% (35 responses)
or job-specific
Programming
tool/language 8.0% (9 responses) 12.0% (9 responses)
Accounting/finance/tax 20.0% (6 responses) 32.5%(6 responses)
Communications/ 5.0% (13 responses) 10.0% (13 responses)
networking
General business 7.0% (15 responses) 12.5% (15 responses)
Utility 10.0% (7 responses) 20.0%(7 responses)
Consumer/education 3.0% (17 responses) 17.0% (18 responses)
Median 8.0% 15.0%






Source: 1997 Softletter/ASP Support Cost Survey

* The international factor: A good many support organizations--though not all--service only their company's North American customer base. If revenue and headcount ratios are based on worldwide sales, the numbers tend to be distorted for companies with active global sales efforts. Since most U.S. support groups develop knowledgebases and provide escalation services to their overseas offices, moreover, cost allocation tends to be a tricky issue.

To gauge the cost of global support, we asked our survey respondents to identify the percentage of their company's worldwide customer base that they "directly" serve, then compared the answers to the company's cost and headcount ratios. This method doesn't capture all the variables in the cost of overseas support, but it does suggest that full-scale international support adds approximately 30% to the cost of support for North America only:

Revenue and headcount ratios by percent of worldwide support
 Support Cost % Support Employee %
"What percent of your company's worldwide customer base does your
support organization directly serve?"
100% 10.5% (48 responses) 20.0%(48 responses)
80%-99% 7.0% (36 responses) 14.0% (39 responses)
Median 8.0% 15.0%
(all companies)






Source: 1997 Softletter/ASP Support Cost Survey

* The outsourcing factor: Outsourcing gets a lot of attention in the trade press and at support conferences, but our data suggests that only a tiny percentage of companies actually rely on outside support organizations. We found just 16 companies, mostly with sales of at least $10 million, that outsource 50 or more calls a month. Moreover, outsourcing apparently hasn't transformed the economics of these 16 firms: They still spend a median of 7% of revenues on support and dedicate 12% of their workforce to internal support, roughly equal to the revenue and headcount ratios of comparable companies that don't rely on outsourcers. And, finally, the actual cost per outsourced call--which we calculated by dividing monthly outsourcing costs by outsourced call volume--turns out to be surprisingly high: $19.67 (median). In short, outsourcing has a long way to go before it becomes a compelling alternative to traditional support models.
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Copyright 1997, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Industry Trend or Event
Publication:Soft-Letter
Date:Jul 21, 1997
Words:804
Previous Article:Benchmark Survey: tech support cost ratios.
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