How to Start a Contract Customer Service Business

Start a contract customer service business by following these 10 steps:

1. Plan your Contract Customer Service Business
2. Form your Contract Customer Service Business into a Legal Entity
3. Register your Contract Customer Service Business for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Contract Customer Service Business
6. Get the Necessary Permits & Licenses for your Contract Customer Service Business
7. Get Contract Customer Service Business Insurance
8. Define your Contract Customer Service Business Brand
9. Create your Contract Customer Service Business Website
10. Set up your Business Phone System

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.

Exploring your options? Check out other small business ideas.

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 will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

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.

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.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

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.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

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!

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.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money 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.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

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.

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.

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.

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.