In-house vs Outsourcing Customer Service: What’s Better for Your Business?

Outsource vs in-house is a critical choice when it comes to finding the right customer service strategy. There are pros and cons to both.

In-house operations offer complete transparency and control, but require dedicated resources to maintain. Outsourced partnerships offer flexibility, cost savings and on-demand expertise. The challenge is finding the right partner who can represent your brand appropriately.

Our verdict:

Correctly executed, outsourcing provides more benefits than costs. But only if you can find the right partner. However, different types of businesses have more to gain from outsourced customer service partnerships.

Business with more to gain from outsourced customer service:  

  • High growth (and variable growth) businesses: High growth and unpredictable growth both create logistical problems for staffing and managing a CS team. SaaS businesses are a quintessential example. Outsourced customer service provides on-demand access.
  • Small-to-medium sized businesses: It can be hard for all but the largest businesses to dedicate the resources required to build and maintain a customer service function. Outsourced customer service lets you focus on running your business.
  • Ecommerce brands: The speed and variability of online competition lends itself well to the flexibility of outsourced customer service, which we’ve outlined in more detail in our guide to eCommerce customer service outsourcing.
  • Business with failing offshore CS functions: As we will address in more detail, offshore and outsourced are not synonymous. Businesses struggling to reform offshore CS functions don’t have the in-house infrastructure required to make an easy transition — looking for a new (quality) outsourced partner is a great solution.
  • Businesses with ageing technology: Particularly large businesses with ageing systems can struggle with the agility required to update their technology and processes. Outsourced partnerships provide ready-made solutions

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Businesses suited to in-house customer service:

  • Luxury and big-ticket items: Brands that rely on fewer, higher-margin sales are presented with much more manageable and specific CS requirements. The in-depth product knowledge and brand experience associated with these businesses play directly into the strengths of an in-house team — and is not benefited so heavily by the flexibility of an outsourced solution.
  • Brands with stable and effective CS solutions: If it’s not broken, don’t fix it. If your business has a successful and stable in-house CS team, keep going with what works.

The flexible structure of outsourced customer service aligns with the distributed and scalable structures we outline in our free ebook — A New Approach to Customer Service.

But outsourcing is only a good idea with the right partner. The rest of this article will help you do two things:

  1. Better understand whether or not outsourcing is the right choice for your business.
  2. Identify what to look for when searching for an outsourcing partner.

Let’s get started, but first:

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Variable 1: Onshore vs offshore customer service outsourcing

“Outsourcing” and “offshoring” aren’t the same thing — at all. In-house functions can be offshored, and outsourcing can be done onshore. Ultimately, the motivations behind the two are different — and the onshore/offshore debate should occur separately to any conversation about outsourcing.

Offshore outsourcing:

Motivated by cost, offshore outsourcing (like in-house offshoring) seeks to capitalise on lower labour cost abroad. Generally, this is accompanied by a depreciation in quality and oversight. Particularly regarding customer service, it can create language barriers (an inability to understand customer service agents is regularly rated as the most frustrating part of a customer service experience), and is a dated solution for both in-house and outsourced customer service.

Onshore outsourcing:

Motivated by quality and flexibility, onshore outsourcing looks to take advantage of specialisation and economies of scale in order to offer on-demand expertise. Generally a more expensive option than offshore outsourcing, onshore outsourcing can still be cheaper than building an in-house team, and provides access to a number of additional benefits.

Our recommendation:

Unless purely motivated by cost, onshore customer service teams (either in-house or outsourced) perform better, provide better quality of service, and offer more transparency. Look for strategic partners that provide onshore customer service.

Variable 2: Distributed vs traditional customer service

The work-from-home (WFH) economy has taken off in 2021. But the drift towards distributing the “call centre” was one of the customer service trends already underway. For both in-house and outsourced solutions, harnessing modern communication technology to allow CS agents to work from home brings two benefits:

  1. Better agents: Flexibility improves quality of life (making the job more desirable), and allows CS teams to hire individuals who otherwise wouldn’t consider working in a call centre — e.g. stay at home parents, people with disabilities, retirees, etc.Distributed service centres have agents with more experience, agents more likely to hold a university degree, and agents with a higher average age.   
  2. Lower costs: Without having to rent office space or build physical infrastructure, overheads are reduced and cost can be kept down, even while paying quality agents more.

Our recommendation:

A distributed workforce is the future of customer service. It brings significant benefits without substantial downsides. Modern communication technology makes tracking KPIs and key metrics easy. By looking for partners who have adopted this model, you can gain better outcomes at a lower cost.

Pros and cons: Outsourcing customer service 

Every business is unique. The best way to pick the right outcome for you is to align the pros and cons of the options with your requirements. Note: This list looks at the best outcomes. It’s possible to pick the wrong outsourced partner or bungle an in-house operation.

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Pros: Outsourced customer service

The advantages of customer service outsourcing are defined by flexibility and specialisation. It’s best suited for businesses with variable CS needs that want to focus on what they do best — running their business.

  • Scalability: Outsourced partnerships remove the challenge of scaling. Rather than having to recruit agents (and ‘time’ the need for recruitment), you gain on-demand access to the agents you need, when you need them.
  • Flexibility: Outsourced partnerships have full-service customer service functions on-demand. That means phone support, email responses, automation technology (e.g. chatbots) and more — ready 24-7. The right partner will provide you with flexible access to these options: paying for what you use and allowing you to change your package to match current demands.
  • Budget control: Your ability to dial-up and dial-down your operations provides ongoing control over your budget at a moment’s notice.   
  • Economies of scale: Costs reduce as production scales. Outsourced customer service partners only do customer service — and benefit from the size of their operation. Generally, you can gain cost savings by connecting into that system, as opposed to duplicating existing infrastructure in-house.
  • Specialisation: Outsourcing allows you to focus on your core competencies by bringing onboard specialists who will do exactly the same thing. By striking partnerships, everyone is allowed to focus on what they do best, and better outcomes can be achieved.

    Thinking about outsourcing customer service? Let’s chat about your requirements >>

 

Cons: Outsourced customer service

  • Loss of control: By bringing in an outside partner, you lose some element of control. You are dependent on that partner to maintain a high quality of service, and need to work with that partner to make sure they represent your brand to the right standards.
  • Procurement processes: Engaging in outsourcing requires picking the right partner. That means a procurement process — which can be challenging and lengthy. The upside, however, is that this replaces an ongoing recruitment process that you would otherwise have to undertake in order to maintain your in-house CS function.

The pros and cons of building an in-house team effectively mirror these described for outsourcing. You trade flexibility and specialisation for increased control over everything other than your budget.

The greater importance you place on curating a specific branded experience, the more value there is in keeping your CS function in-house. However, it’s worth noting that these same standards increase the challenge of getting that in-house capability right. Customer experience is an important brand differentiator, it’s important to take these choices seriously.

Levels of service and hybrid customer service

Outsourcing doesn’t have to be black and white. Brands can benefit from a hybrid approach in which some CS functions are retained in-house, while others are outsourced. This is generally done along different levels of service.

service levels

These levels are:

  • Level 0: Self-service automated support. Includes things like chatbots, automated password reset tools, knowledge bases, blog posts.
  • Level 1: First line of support for incoming tickets. Staffed by newer agents, L1 customer service can solve common problems over the phone or online.
  • Level 2: Problem solving. Made up of senior agents with more in-depth product and brand knowledge, L2 support is designed to step in when L1 agents falter.
  • Level 3: Technical support. L3 agents have in-depth technical knowledge and can resolve the most complex problems. Generally specialists, L3 agents rarely get involved, but are an important asset to have.

It’s not uncommon for businesses to partner with outside specialists to set up and maintain automated CS solutions, and gain flexible front line (L1) support. L2 and L3 functions can then remain in-house, allowing business to manage a far smaller customer service operation, while keeping direct control over more challenging (and brand-specific) problems.

The downside to this approach is redundant costs. L2 and L3 agents are used less often. A benefit of outsourcing these levels of support is only paying for that support when it’s actually needed. Again, outsourcing is about trading control for efficient flexibility.      

The right partnerships: Transparency and flexibility

As we have stressed again and again, making outsourcing work is about finding the right partner. But trust shouldn’t be given blindly. Transparency, accountability and reporting are all key aspects of a successful outsourced operation. Look for clear SLAs (service level agreements), attention to detail when it comes to KPIs, and regular check-ins.

You also need to look for flexible contract terms. The ability to dial-up and dial-down your services agreement is a key benefit of outsourcing customer service. If you end up locked into a contract with rigid service options, you will lose a lot of what makes outsourcing a good idea.

Finding the right partner isn’t always easy, but it’s rewarding when done right. If you want more information on how to build an in-house team or forge a productive strategic partnership, get in touch or check out our free eBook — A New Approach to Customer Service.

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Bobby Devins

Bobby spent 11 years as an Investment Banker before going on to co-found his own e-commerce start-up, where Customer Service was one of the core functions that fell under his remit.

He has spent the past 9 years in and around the start-up space, most recently co-founding Odondo with the aim of reimagining the delivery of Customer Service. Bobby has pursued a very traditional career path for someone who ultimately aspires to be a hardcore gangsta rapper.

Front cover of the new approach to customer service ebook

How to keep customer service agile, improve customer experiences and increase retention.

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