Should You Outsource Customer Service?  (Pros & Cons)

Nouran Smogluk
Nouran Smogluk
February 23, 2024

You experience massive seasonal spikes in volume.

Every year, your team scrambles to hire and onboard new agents during the low season, and you still don’t manage to make it through an entire peak season unscathed.

Your team gets frustrated and burnt out. 

Outsourcing could be the solution you need.

When done well, outsourcing is a valuable strategic decision that can transform your customer experience and lead to happier, more satisfied customers at a fraction of the cost. But if it isn’t the right call for your business, it can be costly and damage your customer relationships. 

Here are some factors to consider before deciding to outsource and how to choose the perfect partner. 

What is customer service outsourcing?

Customer service outsourcing is when a company hires a third-party provider, often called a BPO (short for Business Process Outsourcing), to handle some or all of its customer service tasks. Outsourcing can extend to a variety of channels, such as email, phone, live chat, social media, and more. 

There are different types of outsourcing, and you can choose different models to follow depending on your needs. 

Some companies outsource their support based on location. 

  • Onshore outsourcing which means hiring a provider within your own country.
  • Nearshore outsourcing is hiring a provider in a geographically close country.  For instance, this could look like a US company hiring an outsourced support partner in Mexico.  
  • Offshore outsourcing is working with a provider in a more distant country, often with significantly lower labor costs. That’s the most common type of outsourcing. 

Other companies are focused less directly on the location and more on the scope of tasks that the BPO takes on.

  • Full outsourcing involves handing over all customer service operations to the provider.
  • Partial outsourcing means outsourcing only specific tasks, such as technical support or outbound calls. 
  • A hybrid model combines in-house and outsourced agents for customer support. That might look like having the BPO handle the tier one support tickets while the in-house agents manage escalations.  

Companies typically consider outsourcing because they need to scale their customer support staff in a cost-effective way. It can be a good option for all types of companies:

  • A scaling company might experience sudden growth at a speed that’s hard for them to manage by hiring additional staff, so they find a BPO that can help them temporarily close that gap. 
  • Start-ups might see an opportunity in outsourcing early on to save costs and invest more capital in growth initiatives.
  • Highly seasonal businesses might see totally different levels of income at different times of the year and need extra capacity to cover their peak season. 

The benefits of outsourced customer service

93% of customers are likely to make repeat purchases with companies that offer excellent customer service. 

Great outsourcing means working with a BPO that improves the overall quality of your service. 

The biggest reasons companies outsource customer service are:

  • To reduce operational costs. 
  • To access specialized expertise.
  • To scale in a flexible way. 

1. Reduce operating costs

Unsurprisingly, cost reduction is the primary objective of outsourcing for 70% of companies

You can maintain a much smaller in-house team size and reduce costs spent on salaries, benefits, office space, equipment, and technology infrastructure after outsourcing. 

Since BPOs can leverage economies of scale by distributing their costs across multiple clients, support partnering can result in lower costs while still maintaining high-quality service. 

Focusing too heavily on optimizing for cost always carries a risk of compromising quality. It’s usually a better option to strike a balance between cost efficiency and service quality. 

That might mean restricting the types of outsourced customer service tasks to ensure that critical aspects of customer service remain in-house, where they can be closely monitored and controlled. Some companies see a lot of success outsourcing subscription and billing cases because they typically have clearly defined standard operating procedures around those. 

2. Access specialized expertise

BPOs can often access specialized skills or expertise that you might not want to hire for. You might also see impact a little faster when you work with an experienced BPO for those areas. 

For instance, if you want to offer multilingual support, it can be more cost-effective to hire an outsourced support team. Outsourcing can provide you with support agents with a ton of experience in those markets. 

Another example might be in setting up an AI-powered chatbot solution for your customer service. 

BPOs can develop that expertise by implementing these solutions for hundreds of clients, whereas implementing it for the first time at your company might come with a steep learning curve. 

A third example is offering outbound calls to encourage existing customers to buy more products, refer new customers, and adopt subscriptions.

You might see a higher return on investment and a faster ramp-up time by working with a BPO if you don’t already have the infrastructure or training in place to manage outbound calls. 

3. Offer flexibility and scalability

Outsourcing can provide you with the flexibility and scalability needed to adapt to changing market conditions and fluctuating customer demand. 

A great in-house team takes time to build and typically requires stability. Outsourcing is a way to scale up or down quickly in response to seasonal peaks, product launches, or other fluctuations. This is why 40% of companies said outsourcing provided the organizational flexibility to deal with the changes felt by the pandemic–where a lot of businesses experienced a sudden (but temporary) increase in demand. 

3 factors to consider before outsourcing customer service

There are a few factors that change the type of setup and outsourcing partner you’ll need to look for.

  • Your customers and the volume of inquiries you’d like to outsource.
  • Your service quality standards 
  • Your skills and knowledge that are retained within your internal team.

Customer base and volume of inquiries

When you first start thinking about whether outsourcing is an option for your business, the very first question to ask is: How will outsourcing impact your customers (and, therefore, your business)?

You can start building a picture of that by looking at some of these:

  • Who are your customers? Which customer personas contact you for support? 
  • What are the types of questions and cases your customer service team solves? What’s the distribution of those?
  • What are the trends or patterns that you can see developing in customer satisfaction? 

Say a big proportion of your cases are from new and first-time customers. Most of those questions are simple, product questions that are typically answered in one response. Your goal is to answer these questions as quickly as possible so that you can give those customers a great experience the moment they purchase your product.

That’s a situation where outsourcing probably makes sense. The types of customer interactions and frequency you’re looking at make it reasonable to assume a BPO could handle many of your workflows

Service quality standards and performance levels required

Customer support outsourcing often works best if you’ve already invested in developing your quality standards and performance metrics because that will give you and your vendor clarity in terms of expectations. This also provides an objective way to measure them.  

For instance, you might be aiming for a highly communicative, personalized experience that maximizes the value every customer has from interacting with your team. 

A lot of people might assume that you can’t outsource that–but that isn’t the case. You can definitely find BPOs that are able to meet that standard. You simply need to make that clear to them, provide them with the training and documentation they need to offer to their agents, and understand that you might need to find a more expensive partner. 

Internal team skills and knowledge

Your internal team is likely uniquely qualified and equipped to handle some types of cases either because they have a deeper connection to your product and company, or you’ve already invested in comprehensive training: 

  • Escalations that can damage your reputation.
  • Queries that require deep technical expertise with your product.
  • Inbound and outbound sales support. 

These can change whether you choose to outsource and how much you outsource. 

Outsourcing is not the only solution that provides flexibility and scalability. If you have a highly engaged community of customers who know your very technical product really well, you might benefit more from seasonal or freelance hires.

That’s because it’s hard to create training materials that can compete with years of product engagement–and it’s hard to find outsourced agents who are as motivated as someone already using your product. 

That said, if you’re outsourcing a massive volume of work and you’ll have agents working exclusively on your product year-round, outsourcing might still be the best option. If outsourcing is the right solution for you, you need to invest in the tools and infrastructure to make it work well. 

For instance, a comprehensive knowledge base, like what you can build with Tettra, can make a massive difference–not just externally to your customers but also to your outsourced team. You can drastically reduce how much effort you invest in training if you have good documentation available. 

How do you choose the right outsourcing partner?

Once you’ve made the decision to outsource, the next challenge is finding the right BPO to partner with. 

  1. Define your needs and goals. What tasks are you outsourcing? How will you measure success? Do you require industry-specific knowledge or expertise? Some BPOs specialize in mobile app support. Others offer a great call and contact center. Defining your goals will already exclude a lot of potential partners. 
  2. Research potential partners. It’s usually best to look for recommendations from within your network. Shortlist 3-5 providers that align with your needs and budget. Speak to all of them before you decide to pick one. 
  3. Conduct your due diligence. Assess their communication style, team capabilities, cultural fit and record of customer care. The partner’s philosophy around providing support has to align with your expectations and needs. That means understanding how they hire agents, how they train them, what their retention rates are like, how they monitor and improve performance, and how long it takes them to build a team. This is where you should pay very close attention to potential red flags like lack of transparency or responsiveness. 
  4. Negotiate an agreement. Clearly define SLAs, quality standards, reporting frequency, and any dispute resolution clauses. You’ll likely need to agree on security measures and data-handling processes as well. Before you sign anything, check if your potential BPO seems resistant or demonstrates inflexibility when it comes to accommodating your needs. 
  5. Invest in a great onboarding. Work with your partner to develop training materials. Figure out a communication cadence and collaboration methods with your team, and establish regular performance monitoring and feedback mechanisms. These are the systems that will keep your partnership healthy and increase the likelihood that outsourcing will work for you. 

Pro tip: It can be a great idea to negotiate a pilot project with one or two partners before committing to a long-term contract because that will show you how your ideas work in practice. 

Some companies jump into outsourcing, assuming that you can simply hand off the reins to the BPO and reduce their involvement in customer service. 

That probably won’t work–at least not in the short term. The first few months setting up such a major process change will require attention and oversight. 

Great knowledge management makes outsourcing easier

Deciding to outsource your customer service has to be a holistic decision. You should consider not only the potential cost savings and what you stand to gain but also the impact on service quality, customer satisfaction, and your overall business objectives. 

If you’re considering outsourcing, now is the time to look into your internal processes and tools. Build a centralized source of truth for your support team with Tettra that your customer-facing teams can access will make every step of outsourcing easier. 

Start a free trial of Tettra to build your internal knowledge base today! 

Nouran is a passionate people manager who believes that work should be a place where people grow, develop, and thrive. As the founder of Tales of Management, she offers workshops, resources, and content about leadership, remote work, and creating great customer experiences.