• Vinay Vasudevan

Cost and Revenue - How WFM affects it. Part - 3

Updated: Feb 7


This is the continuation of my previous blogs, divided into three parts.


In Part 1, we saw the cost structure, and in Part 2, we saw some billing models.


Let us look at some more billing models and their calculations.


I've attached the file at the end, which shows simple calculations of cost and different billing models.


Please make sure to check the file.


Just to quickly recap, in Part 2, we saw the below models.

  • Per FTE per Month

  • Per Seat per Month

  • Per Hour


In this Part, we will further look into the below models.

Per Productive Hour(Including Avail)

  • Per Productive Hour(Excluding Avail)

  • Per Connect Minute

  • Per Transaction

  • Outcome-Based

As explained in Part 2, we will consider the expected Profit as 20%.

Per Productive Hour(Including Avail)

Recently, this billing model has been gaining popularity against others. Below is the calculation.

  • Cost - $194887.34

  • Expected Profit - 20%

  • Required Revenue - $233864.81

  • No. Of FTE - 150

  • Payroll Hours/Month - 176

  • In- Office Shrinkage - 10.3%

  • External Shrinkage - 14%

First, we calculate what is the productive hour per month per FTE by removing the shrinkage


i.e. 176*(1-10.3%)*(1-14%) = 135.76


This is then multiples with No. of FTE, and then the Revenue is divided by the resultant number.


i.e. 150*135.76 = 20364


Rate Per Productive Hour = Revenue/20364


i.e. Rate Per Productive Hour = 233864.81/20364


Rate Per Productive Hour = $11.48

Per Productive Hour(Excluding Avail)

The only difference between this model and the previous one is the consideration of billed occupancy to remove the availability.


Some clients prefer not to pay for the time spent on avail, which is when this model is used.

  • Cost - $194887.34

  • Expected Profit - 20%

  • Required Revenue - $233864.81

  • No. Of FTE - 150

  • Payroll Hours/Month - 176

  • In- Office Shrinkage - 10.3%

  • External Shrinkage - 14%

  • Billed Occupancy - 76.86%

First, we calculate the productive hour per month per FTE by removing the shrinkage. i.e. 176*(1-10.3%)*(1-14%) = 135.76


Then, multiply the result with the billed occupancy to determine the actual productive time.


i.e. 135.76*76.86% = 104.34


This, 104.34 is essentially the time an agent spends talking to customers.


When multiples by the No. of FTEs, we get the total time.


i.e. 104.34*150 = 15651.77


Further, divide it by the Revenue to get the per hour price.

Rate Per Productive Hour = Revenue/15651.77


i.e., Rate Per Productive Hour = 233864.81/15651.77


Rate Per Productive Hour = $14.94

Per Connect Minute

The term connect minute essentially defines itself. It is simply the total minutes an agent spends talking to customers.


But, to achieve operational excellence, the total minutes are calculated with either actual or target AHT depending upon whichever is lesser.


Let us look at the below two scenarios to understand the same.

Scenario 1

  • Total Call Handled - 12000

  • Actual AHT - 294 Secs

  • Target AHT - 300 Secs


In the above case, the connect minute would be,


12000*(294/60) = 58800


Scenario 2

  • Total Call Handled - 12000

  • Actual AHT - 304 Secs

  • Target AHT - 300 Secs

In the above case, the connect minute would be, 12000*(300/60) = 60000


With this understanding, let us look at calculating the per minute rate below.

  • Cost - $194887.34

  • Expected Profit - 20%

  • Required Revenue - $233864.81

  • Target AHT - 300 Secs

  • Volume Forecast - 200000

  • Call Capacity - 207728

The first step is to get the billable volume, i.e., the minimum volume forecast and call capacity.


Billable Volume = 200000


Multiply the Billable Volume with the Target AHT and divide by 60 to convert in Minutes.


i.e. 200000*(300/60) = 1000000


Divide the Revenue by Total Minutes to get the Per Connect Minute Rate


i.e. Per Connect Minute = Revenue/Total Connect Minutes


i.e. Per Connect Minute = 233864.81/1000000


Per Connect Minute = $0.23


Per Transaction/Per Call

Again, the model name is self-defining, where the client is billed for per call, which is handled.


Let us look at the below calculation.

  • Cost - $194887.34

  • Expected Profit - 20%

  • Required Revenue - $233864.81

  • Volume Forecast - 200000

  • Call Capacity - 207728

As explained in the earlier model, the Billable Volume is considered.


Billable Volume = 200000


The Revenue is then divided by the Billable Volume to get the Per Transaction Price.


i.e. Per Transaction = Revenue/Billable Volume


i.e. Per Transaction = 233864.81/200000


Per Transaction = $1.17

Outcome-Based

This model was mainly designed to improve or drive the operational matrix such as CSAT, FCR, etc.


The logic of this model is relatively straightforward.


Let us consider the FCR target to be 90%, but the Actual is 86.37%


This means there is a gap of 3.63%.


Now, these are applied to the Billable Volume and removed.


i.e. Billable Volume = 200000


Gap = 3.63%


Actual Billable Volume = 20000*(1-3.63%) = 192740.


Using this Billable Volume, the model can be calculated for Per Connect Minute or Per Transaction.


Any of the above billing models can be used in a particular contact center, but there are many factors that drive the decision.


I leave it to the readers to research what parameters affect the decision of which billing model to be used.


PS: The above-explained method is only for illustration purposes and a basic understanding.


In reality, the models used need more complex calculations. However, I hope this gives you a good start.

Thanks for reading.

Stay Tuned!!

Billing Models Sheet


Disclaimer: The postings on this site are my own and do not necessarily reflect the views of my employer.


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