Start a contract customer service business by following these 10 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your contract customer service business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a contract customer service business?
You'll need office furniture and communication equipment, such as a desk, headset, and computer hardware. Entrepreneurs may have to pay for the installation of new internet or phone connections. Some individuals have spent as much as $1,500 to set up home offices for this purpose. Contractors might also face initial training expenses of $50 to $300.
Callers should not hear noise from outdoors or elsewhere in the building, so you might need to upgrade your windows, attic insulation, or office door. A thick rug may help muffle unwanted sounds. If you want to keep costs low, try using an electric fan or other machines to create white noise.
What are the ongoing expenses for a contract customer service business?
You should plan on paying for basic office supplies as well as power, internet, and phone services. Your home may need a second telephone line. The necessary telecom services will probably cost at least $50 per month. Possible additional costs include wages, various fees, ongoing training, marketing, and insurance.
Who is the target market?
You'll probably serve large businesses that sell products or services to consumers. They include retailers, resorts, cruise lines, utilities, and software developers. Some industries deliver more reliable income. Health-related companies and online stores with large product selections tend to receive calls more consistently than tax preparers.
How does a contract customer service business make money?
You might bill clients directly or work as a subcontractor for a major service provider. Companies typically pay-per-minute rates, but it's also possible to get paid by the call. Income varies depending on the season and the industries you serve. Earnings frequently rise during times of high demand, such as December.
How much can you charge customers?
Many subcontractors report earnings of $0.20 to $0.30 per minute while serving customers. Hourly rates vary based on demand. If you run a business with multiple agents, you may charge higher rates and keep a portion of each representative's income. Business.com reports that TeleDirect clients pay $0.75 to $1.29 for each minute. The exact cost differs depending on the number of minutes used in a month.
How much profit can a contract customer service business make?
One major company's profit margin reached almost 30% in 2017. However, you're likely to earn less as a small business or subcontractor. Exercise caution — some individuals have lost money to high training costs that didn't result in adequate earnings.
How can you make your business more profitable?
Choose clients selectively; well-established companies with year-round demand often yield higher profits in the long run. Tax deductions can help you keep more earnings. If you have a total of at least two landline and/or cellphone subscriptions, you may deduct the cost of a business-specific line. The same goes for office supplies and some or all of your internet bill. More tips:
- Specialize in serving one industry if you have relevant experience.
- Maximize your availability during high-demand hours, days, and weeks.
- Find a way to earn money on your computer while you wait for calls.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your contract customer service business is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
How to promote & market a contract customer service business
Highlight the potential cost savings while explaining how you maximize quality and provide a seamless experience. Clients don't just save money on wages and benefits; they also need less equipment, supplies, electricity, and internet bandwidth. Businesses often pay around one-sixth to one-third less than they would spend on an in-house call center.
You could contact ideal future clients by mail or promote your firm in business publications. Another option is to purchase LinkedIn advertising that targets company officials with the power to make important decisions. If you'd prefer to avoid marketing, you can become a subcontractor for an agency and let them find clients for you. However, this could result in lower per-minute earnings and higher fees.
How to keep customers coming back
New clients want professional contractors they can trust. Prior experience, references, and a quiet, well-organized office will help you reassure them. If a company provides detailed specifications, you must follow them carefully. They might expect the call length, hold times, and refund approvals to fall within certain ranges. Always keep information about clients and their customers secret. Don't reveal your location or mention any companies other than the client. If possible, gather and thoroughly analyze feedback from the callers and firms you serve. Remember that even unfair or rude criticisms can sometimes contain useful information.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
Start A Contract Customer Service Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
You might excel in this field if you value professionalism and don't mind multitasking or long hours. Agents need to think quickly and stay calm even when callers behave rudely. This work often appeals to people who wish to spend more time with their spouses, children, or pets. However, they mustn't distract you or make noise during calls. You'll benefit from a willingness to work during weekends and/or nights.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a contract customer service business?
Representatives spend most of their time responding to customer inquiries. You might use a telephone, text-based chat system, email, or video chat service. Responsibilities vary — some clients may only expect you to answer questions. On the other hand, you may also need to handle transactions. Some agents arrange appointments, reservations, orders, cancellations, and refunds.
When contractors perform these tasks, they must behave as if they're the clients' employees. Callers shouldn't know that you work at home or run a business. Nonetheless, you probably won't have the power to solve every problem. Some representatives transfer calls to clients' offices when they can't provide assistance.
What are some skills and experiences that will help you build a successful contract customer service business?
Any kind of customer service experience holds value. You also need computer skills and the ability to stay organized. Many clients will expect you to follow complex rules. Your mind mustn't wander easily; representatives have to pay attention for long periods of time. Prior involvement in a relevant industry is beneficial. For instance, you might serve travelers more efficiently if you've worked at a hotel or airline. Management experience proves useful for anyone who plans to hire additional agents.
What is the growth potential for a contract customer service business?
The demand for this service has grown as consumers make more online purchases. Today, employees in physical stores, hotels, and airports meet a smaller portion of customer service needs. This creates opportunities for remote contractors. At the same time, the rising prevalence of automated "chatbots" could limit growth.
Many one-person businesses provide services in this field. For instance, an independent contractor recently posted an Indeed review about successfully working full time and earning around $16 per hour. This individual strongly praised the job despite mentioning angry callers and a lack of benefits.
Companies have great potential to grow larger. Some contractors hire thousands of representatives to serve many different clients. California-based Concentrix provides one example of success on a massive scale. The business was established in 1983 and currently has about 90,000 agents.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a contract customer service business?
Maintain a pleasant tone and take the time to listen. Don't jump to conclusions before the caller has supplied enough details. If a question seems unclear, repeat what the person said in different words and ask for confirmation. Say the caller's name from time to time, and don't hesitate to apologize.
Strive to find the right balance between serving a company and its customers. The client probably doesn't want you to give a refund to every person who complains about anything. At the same time, you shouldn't spend so much time defending the company that customers feel ignored. Concentrate on offering one or more appealing solutions.
If you hire representatives, beware of micromanaging. This habit can waste a supervisor's time and increase turnover. You need to trust your employees or subcontractors to some extent. Focus on goals like solving problems and satisfying callers rather than less meaningful statistics, such as the average number of minutes per interaction.
How and when to build a team
While you could certainly run this business on your own, a contractor may benefit from hiring representatives after creating a profitable business. Glassdoor reports that remote agents earn just under $28,000 on average, while some estimates put this number closer to $20,000. Many agents work as independent contractors, using their own equipment and office space. Be sure to seek individuals with patience, empathy, and clear voices.