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Is Technical Phone Support a Viable Option for a Software Company?

Yes and no.

Yes, in that it lets you get closer to your customers. There’s nothing quite like talking to your customers one on one to find out exactly what they think of your product, of your company, how they found you, and everything else. Having a phone number also gives some credibility to your company.

No, because phone support is extremely costly. Most people don’t realize it, but phone support is several times more expensive than online support for the same customer base! As well, although it increases the sales, it’s nowhere near in proportion to the extra costs. I now understand why pretty much every software company charges for phone support.

So is it a viable option? Maybe… Rather than debate the hypothetical, I’m going to share our latest experience with free phone support and our prototype project here at LandlordMax. There’s nothing better than a case study! The results might be different for you and your company, but this is what happened for us.

When I first started LandlordMax, I offered support through email only. In the beginning it was pretty simple, I could manage it all through my email client. As the company grew, the support needs grew where we ended up purchasing a customer support system called FogBugz (allowing multiple people to manage support through a web application). As our needs continued to grow and exceeded even this software (we still actively use it for project management and bug tracking, it’s strong suite), we moved up to HelpSpot which is focused on customer service. This is an online system which accepts requests by email, through online forms, etc. All requests are allocated a ticket number and everyone also receives an online link where they can view the details of the request directly online if they want (including every detail, from how long it took to respond, and so on). This is great because it alleviates a lot of the issues with people who have very aggressive spam filters (because we’re a real estate based business, sometimes we need to use words such as “mortgage”, etc., which are often wrongly picked up as spam by email filters).

Because of the way our customer service system works, we’re able to offer free unlimited online support which is guaranteed to be answered within 1-2 business days (generally we answer it on the same day). This is great because most of our competitors charge for ANY support, and some quite a bit! Never mind phone support which I’ll get to in a minute.

About three months ago we decided that we wanted to start offering free phone support to our customers. Up until now, that is for the past 3-4 years, as I just described, we’ve been offering online support only (email, web forms, etc.). We wanted to see if it made a difference, how much, and if we could offer it for free. You see, although I could charge for phone support like our competitors, I really don’t like this option. To give you an idea of the market, most of our competitors charge between $100-200/hour for phone support!!! Some only offer email support if you buy a support contract. Another competitor will only sell you their software if you also buy a minimum support service package of $200! Personally I don’t believe in this. If you buy a product, you shouldn’t have to pay to get some help in answering your questions. I understand there is a place for premium support, for example a guaranteed response within 24 hours, etc., but this wasn’t out goal today.

I also do understand the business behind it, phone support does cost money. And let me assure you, it really does cost quite a bit. Not just in technology or service costs, but in man-hours! Man-hours are your largest cost factor, no doubt about it. Anyways, what we decided to do was offer free unlimited phone support for 3 months as a trial experiment to see if it was a viable option for us. Hopefully by offering phone support this would increase our customer’s happiness, and hence increase our sales. We also decided to use 3 months because it gives it some time to build momemtum As well, perhaps we’d also be able to add some extra sales from people who were more timid about purchasing software from a website and would rather purchase it over the phone.

That was three months ago. Today I know the results. So let’s look at the results of our experiment. Although I’m not going to share the detailed metrics, here’s a summary of what happened:

  • The average time to support a customer increased significantly over the phone versus online support. There’s nothing wrong here, it’s just the way it is. I would say that on average the time spent responding to a customer increases by 2-10 times. This can be attributed to the fact that some people ask more questions on the phone, some wish for you to wait while proceeding through the steps (for example waiting for the purchase email to make it through), sometimes you wish to wait to verify that the customers issue is fully resolved, and so on. Overall I would say this is fairly accurate metric for us.
  • For each person who answers the phone you need to train them in your software. This includes how it works, how to properly answer questions, what the procedures and policies are, etc. To achieve a good support level this is not a small task.
  • With phone support, although we don’t promise an immediate answer (we keep the same guarantee of 1-2 business days), phone calls break people’s workflow, their rhythm. For every break in concentration expect between 15-30 minutes of lost time to get back to the same productive state. With online support this can be drastically reduced by answering requests in batches during breaks, or what we list to call “mental breaks” (where you need to look at something different to give you brain a break). By doing this we keep all support responses in blocks and greatly increase overall productivity!
  • Long distances phone charges do add up… We’re using a VOIP system but that’s also not without it’s own costs.
  • Sales have increased, but nowhere near in proportion to the extra costs (especially if you add in the time costs). I’d say that we’ve barely increased sales by 10% and almost multiplied our support costs by 5-6 times. Therefore it doesn’t make sense to spend 5-6 times more money to make 10% more!
  • One thing that you really benefit from is that you get real live customer feedback about your software. I personally found that when I was on the phone, people told me a lot more about what they liked and didn’t like about the software right away. They also told me what their biggest pains where, which is golden! Which features do you think we’re going to add next? Probably where our customers biggest pains are!

Therefore, weighing in the pros and cons, it looks like we’re going to discontinue free phone support. Actually at this time, we’re going to discontinue all phone support. We’ll probably try it again in the future, things do change, but for now it just doesn’t make economical sense.

I can already hear some people saying why don’t you just offer paid phone support for those customers who want it. This way you don’t have to build it into your price and those that are interested can pay. The reality is that I’ve found that only about 7% of our customers (combined with pre-sales) use phone support. I can’t speak for every industry, but assuming these numbers, and the fact that we’d have to charge, I believe that the total percentage of people who would use paid phone support would drop significantly. Because there is a minimum fixed cost associated to having a call center, we’d still have to charge a minimum fee per call to just cover the costs. Assuming only 10% of the people who use phone support would be willing to pay the fee (I’d guess around $100/hour), then that would mean 0.7% of all customers would use this service. I’m not willing to risk the significant amount of capital it would take (we’d now also have to add a billing system to our phone system) to support 0.7% of our customers. At that point, unfortunately, I’d have to welcome them to purchase from our competitors.

As you can see, it’s not that I don’t want to offer phone support for LandlordMax, it’s just that it’s not a viable option for us. And yes I understand that some people will not purchase anything from a company that doesn’t offer phone support, but that’s ok. I’m willing to lose that very very small percentage of customers. Assuming they’re 10% of the 0.7% of customers willing to pay for phone support, we’d be losing 0.07% of our potential customers.

Therefore, to answer the question based on our experiment, is it viable for software companies to offer technical phone support. Again the answer is yes and no. It depends on your market and who you are:

Software under $100

I seriously doubt you can do it for free. I also doubt you can charge for it either! Unless you have economies of scale and you can seriously amortize your costs, no one is going to pay you the price of your software for assistance! And if you did offer phone support, it couldn’t be more than one call for free at best, if that. I looked up Quicken, a large company that can use the advantage of economies of scale, and they only offer free phone support for installation, purchase related questions, etc. After that, any help within the software (for example how to setup a bank, etc.) will cost you $24.95 per issue, or 86% of the purchase price!

Software between $100-$250

You’d still be hard pressed, but you might have a chance. Of course you could only offer one incident at most, and every additional call would have to be charged. Also if your company is smaller than a medium sized company ($10 million plus in annual revenue), I just don’t see how you could offer free phone support.

Software between $250-$1000

Possibly. Here’s where it gets interesting. I think in this case the industry and specifics of the software will determine whether you can or not. To give you an idea of just how difficult it still is at this level of pricing, Microsoft Office only offers you two free phone support sessions and then they charge you $35 per additional incident, all this for a product that costs $399 for the “standard” edition!

Software over $1000

Generally software over $1000 comes with some sort of SLA (Service Level Agreement). The more expensive the more comprehensive the agreement. Under $5000 it will be somewhat limited, but over $30,000 it becomes generally becomes much more comprehensive (before LandlordMax I had only worked with one company that sold software for under $30,000). Often in these markets there are a limited number of customers, and the vast majority are corporations where phone support is expected as part of the SLA (wouldn’t you expect it if you paid $1 million for a software package).
So all said and done, looking at our cost to benefit ratios, it looks like we’ll have to end our phone support for now. There’s not much to debate about. Like I said earlier, we’ll probably try it again in the future, maybe next year… I don’t know. But for now, we’re going to go back to online support only (email, online forms, etc.). I just can’t justify the substantial extra costs for the amount of extra revenue it provides. This would be like asking a landlord to build a private pool for each apartment unit to generate an extra 10% in revenue. It just wouldn’t make sense, landlords don’t do that.

To quickly end the discussion, since I know some people will ask, do you regret experimenting with offering phone support? Absolutely not! I think every business is different, and every business should try it! You can’t grow without trying. Michael Jordan didn’t just start scoring baskets on day one, he tried a lot of things before he figured out just what worked for him. So try things, test what works and doesn’t for your company. Maybe you’ll have very different results than we did at LandlordMax. Please comment if you did, I’d love to hear about it.



 
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Comments:

  •     Dan Itkis
    · October 10th, 2006  · 5:36 pm  · Permalink

    Steph,
    there are several ways to get the best of both worlds (get customer feedback, improve customer satisfaction and not break the bank)
    I used to run a profitable ASP company. We used Live Chat extensively (eliminates your telecom costs) with desktop sharing (speeds up solving the problem). Unfortunately there’s no way around the additional labor cost to have an employee to man the chats (do you really want to be interrupted by doing your own support?), but using those mechanisms one person can handle several conversations simultaneously plus you get copied on the transcript of the chat so you can analyze it with them later.

    Also I think you’re charging too little! I have some thoughts for you on how to raise your prices and add more customers. Feel free to contact me, I consult small technology businesses for a living.

  •     Steph
    · October 10th, 2006  · 8:28 pm  · Permalink

    Hi Dan,

    You’re absolutely right. And for us as we’re still fairly small, there’s a lot of multi-tasking. No one is isolate to any one are, which to me makes it a more interesting work environment rather than doing the same thing over and over again.

    In regards to your other comment, it’s funny that you mention we under charge. Actually one of my upcoming articles in the very near future was going to be about pricing. We’re about to increase our price a little bit with the next major release from $147 to $165 for the downloadable version, and possibly offer some additional options. I won’t go into the details here, but needless to say almost all the signs point to us moving up the price. We have virtually no one complaining about the price and many people asking us how we can offer the software at so low a price. If there ever was an indicator that it’s time to raise the price, that would be it. There are of course other internal reasons, but I’ll leave those to the article.

  •     Neville Franks
    · October 10th, 2006  · 9:18 pm  · Permalink

    Steph, I still offer free phone support, but rarely get calls these days. Being located in Australia has something to do with this. It really was very different 10+ years ago, when folks from all over the planet would call day and night!

    You can certainly garner a a lot more interesting and useful information having a real live conversation with someone. When I starting working on my latest product my plan was to go out and demo it and watch people use it. Unfortunately that never happened.

    I’ve been toying with the idea of adding a “SkypeMe” button to my site to get some of these live conversations happening. But I’m undecided. Have you considered this?

  •     Steph
    · October 10th, 2006  · 10:22 pm  · Permalink

    Hi Neville,

    It sure is different today. I remember a shrink wrap company I worked for that took all their orders either by fax or phone (the internet was still only available to government and educational facilities). Ah the good old days. At the same time as I was a developer I was also a tech support level 2 or 3, I forget now… I do remember that it meant I took phone calls for the most complex issues. I also took the phones when they got overloaded, which was very often, way too often! I can tell you that all those calls had an effect on my productivity as a developer.

    And like I said before, this isn’t a bad thing, it’s just that it means more support people are needed. Developers should develop and support staff should support the customer. Accountants should work numbers, plumbers should work on your plumbing, etc. Focus on your core skills and competencies.

    That being said, like you mention, the feedback is amazing over the phone. I fielded the majority of the calls while we had our phone lines open here at Landlordmax and it was extremely informational. No doubt about it!

    And like you also mention, it all comes down to cost/benefit. It would be great to go out and demo it, but you’re probably already receiving more than enough feedback to keep development going for several more years! I know for us we have at least 5-10 years of future features currently scheduled (assuming current resources). Of course this always seems to increase faster than what we put them out!

    As for a SkypeMe button, I never really thought of it. I’d say that about 50% of our customers who contact us are not computer savy, many need to be thought how to copy and paste their license codes. Nothing wrong with that, we all focus our knowledge and education on what’s important to us, that’s life. Just like I don’t know much about my car, I have other better places to allocate my time and energy. Other people have better things to do than learn the details of operating a computer. But because of this, I don’t think many of our customers would use it, never mind know what it is.

    What we’ve done though is take advantage of the lower costs of VOIP, which has worked out great. The thing to remember with phone support is that it’s the personel costs that are the biggest factor by far. And to be honest, as time goes on, our support costs are increasing which is expected as our customer base is increasing.

    For us, it’s more of a how much will it cost to provide phone support to our customers versus what’s the benefit to them and us. Today the cost is way too one sided on the side of cost. The benefits side for either us or the customer are just too low…

  •     Ryan
    · October 11th, 2006  · 2:57 am  · Permalink

    Since you have a phone number on your web site, what do you tell people if they call for support?

  •     Steph
    · October 11th, 2006  · 10:22 am  · Permalink

    Hi Ryan,

    Great question! Actually we’re in the process of removing the phone numbers from the website this week. They should all be gone by the weekend.

    As for how we’ll answer the phone, we’ll do just like in the past. If someone calls asking for support we say we don’t provide support by phone and their more than welcome to submit us a request by email or through the other online means which is guaranteed to be answered within 1-2 business days, but generally within the same day. The voicemail will also say that phone support is provided through email or online, much like before we tested phone support.

    The phone lines will still be open for 2-3 weeks after we remove the phone numbers from the website just to give people a chance to adjust to this new change. After that, we’ll no longer accept any more support calls, we’ll direct to the online support.

  •     Chui
    · October 11th, 2006  · 8:28 pm  · Permalink

    I suggest you try some thing like Citrix Online, or one of the hosted remote desk support tools. Citrix is not the cheapest, but it is snappy.

    Support should certainly not be free. Don’t forget there are customers though whose time are worth more than money alone (who’d rather spend time with their kids than fiddling around with a property management software), and wouldn’t mind paying for it to sort things out.

  •     Steph
    · October 11th, 2006  · 8:52 pm  · Permalink

    Hi Chui,

    I completely agree with you. But again it comes down to both our cost/benefit. In our particular case, only about 7% of our customers used phone support. I don’t know what the metrics would be if we had to charge them $100/call, but I assume it would drop significantly. If that’s the case, assume less than 10% would still call (for sure much less than half), than that means we’d be opening up a support call center for 0.7% of our customers!

    The issue here is that we don’t have the economies of scale to support that. If you’re Microsoft or Intuit, as I described above, then it’s great. 0.7% of many millions of customers is a lot. For Microsoft alone that’s probably many millions itself! And don’t forget they can also reduce their per call support costs in many ways through economies of scale.

    For us, in a fairly niche market, I doubt we’ll ever sell $1 billion worth of software a year. The market just isn’t that big. You have to remember only a small percentage of those who own property rent, and most of the rentals are owned by an even smaller group (those that would need the software). I’m not saying it’s not a great market, it is for us! But the idea is that we have some financial constraints on what we can offer in terms of economies of scale.

    Let’s assume we sell $10 million in software a year. And that 0.7% of our customers would be willing to pay for phone support. That means that for $70,000 in revenue we have to open up a call center (assuming free support). If you charge per call, than at our current price, that’s a call center for 466 people, or $46,600 in revenue to support and maintain a support center.

    I know that might seem like a lot, but if you start to add in the costs, it quickly adds up. Money for renting the space, equipment, phone systems, credit charges, billing, etc. And don’t forget the biggest expense, salaries.

    With our numbers, it just doesn’t make sense until we hit $25+ million or more in yearly revenue, at least that’s my take on it right now. We’ll see again in the future as the odds are I’ll give it another try…

  •     Steph
    · October 12th, 2006  · 12:07 am  · Permalink

    Btw, if your company has very different numbers, please let me know… I can only share the percentages we (LandlordMax) get in terms of phone versus online, etc.

    Some companies may get a lot of support calls (making this a viable solution), others very few…

    I have to admit for the amount of traffic and sales we get at LandlordMax, we seem to get very few support calls as a total percentage.

  •     Chui
    · October 12th, 2006  · 9:27 pm  · Permalink

    You numbers look sound. I suspect though there are times though that phone combined with remote desktop can solve problems faster than e-mail alone. What’s your experience in this regard?

    The company I work for operates in the enterprise market, and it is almost entirely phone support. It is quite expensive to run, but is factored into the annual support contract. I’m not sure if this is even possible with a consumer product.

  •     Steph
    · October 12th, 2006  · 10:07 pm  · Permalink

    Hi Chui,

    Again you’re absolutely right! And sometimes we found that it was also easier to just call the person. Although we say we don’t provide phone support, in the past, if we found it gets too complex and a phone call would have been much easier, we made the call.

    As for a remote desktop application, we’ve done this too. Sometimes there are some communication issues where it’s easier to just show the customer (although now we’re starting to build animated tutorials such as this one to really alleviate this need.

    Anyways, for remote desktop support, what we found is that we don’t use it often enough to purchase a regular service. As well, if we’re using a remote desktop application for our clients, you have to remember that many aren’t very computer literate (if at all), then we don’t want any complex solution. The problem is that most remote desktop application are just too complex for people! For example, RealVNC (a paid product) which I find ahead of the open source tools, that I’ve personally purchased and love using, is still complex for many of our customers. Most computer users (not just our customers, ask your folks, siblings, friends, etc.) have no idea what their IP address is, never mind what an IP address is… So what we generally use is CoPilot from FogCreek.

    We use this product because it’s incredibly easy for our customers. All we need to do is instruct them to go to the CoPilot website, enter in a number that we read over the phone, and away we go! It isn’t free, about $10 a session for one time sessions (you can buy larger plans but we haven’t really needed to yet).

    I think the key is also to make your program as easy as possible to use and have good documentation. I’ll be honest, and I might have mentioned this before, but we get an unusually small number of customer service requests when you factor in our traffic and sales. As well, most of our support is pre-sales questions asking if LandlordMax can do things it can’t do (because they can’t find any mention of it on the website). For example the most common question we get is if the software is networkable. The current version is a standalone desktop application only. We are planning on offering a web based version in 2007 if all goes well, but it’s not available yet. So when they can’t find anything about this, they ask us. And to be very honest, we like that, it really helps us gauge just how much interest there is in pushing this product forward.

    The other more common questions we find are going to be addressed on the website soon. For example one question is how many units can I enter into the software which I I talked about here on FollowSteph in the past (and how to address the question on the website’s copy).

    Anyways, getting back to your question, you’re very right in that it’s also much harder to offer an annual support contract for a consumer product. It’s possible, but I don’t think based on our current metrics that it would be worth the venture…

    I’d love to hear of a solution to this issue, I just don’t see it. And like you implied, it’s easier to sell with enterprise software. Actually, from my personal experience, it’s generally a big part of the deal itself. And often it’s even higher than the product, depending on what you consider par tof the annual support costs. Some companies make their whole profits from this alone and nothing else, where the sale price is a loss leader…

  •     FollowSteph.com » LandlordMax Customer Testimonial
    · September 25th, 2007  · 10:22 pm  · Permalink

    […] someone complaining that we do not offer phone support, that they couldn’t understand why. We tried this but found it was not a viable option for us. Although we don’t offer phone support, it doesn’t mean that we aren’t willing to […]

  •     FollowSteph.com - How Blogging Can Help Your Business
    · October 4th, 2008  · 11:45 am  · Permalink

    […] significant amount. Now every time someone asks us why we don’t offer phone support I send them a link on my blog explaining why we don’t offer phone support. 99.9% of responses after reading this blog post are understanding and positive. Some extremely […]

  •     Clay Nichols
    · April 16th, 2010  · 7:27 pm  · Permalink

    Great article. Interesting point about costs of Email vs. Phone support.

    I spoke with someone at Netflix when getting support there. Back then (maybe even still) they did ALL support via the phone. They said it resolved things quicker. For us it’s a mixed bag. For some customers, if we can batch the support calls its much faster to deal with the issue on the phone. And the “getting to know your customer” is vital. It’s our core competency.

  •     SL Burkes
    · February 13th, 2016  · 9:18 pm  · Permalink

    I’m interested in acquiring between one and five licenses for landlord Max however I do not have a PayPal account, I have introduced your software to a client of need and would like to get the full version of the running as soon as possible is there any sales number so that I may call to make arrangements.
    Thank you
    Southwinds Villa Apartments manager

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