VoIP for Dummies 2005

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Many single-location companies fit this situation. For example, I consulted with a company that ran six call centers out of a single location. This company does more telephony business in a week than some of the Fortune 500 companies do in a month. Their monthly invoices for phone services were in the multiple millions of dollars. They called everywhere in the United States and the world and received calls from everywhere in the world for their many clients. Such a company actually redefines the meaning of a small, singlelocation company.

The analysis in this type of context would pretty much follow that of Bremer Healthcare, the case study in Chapter 12, with only a few variances. Instead of location line items for each site (as in Bremer’s case), an analysis would use call center line items and calculate the traffic patterns and costs. My experience with call centers is that they usually have competent people at the helm of their telephony services, and if they are not running VoIP, they have the best of the best that you can derive from traditional telephony services. These folks tell the carrier what they want and jump all over them when they don’t get it. As a result, I’m more concerned with all the other single-site, smaller companies that directly depend on carriers. These are the companies that get taken to the cleaners more often than not.

Location alone does not give you all the information you need to recommend a conversion to VoIP. To make sense in a small company, VoIP has to change the cost picture.

In small, single-site companies with largely local calling area telephony usage, the risk is that VoIP could become an added expense that may not have a payback and may not change the company’s productivity. These are crucial points that a smaller company needs to think through before making a VoIP decision.

The bottom line is that VoIP has to either reduce your operating expenses or help in some way to increase your revenue.

Figuring out those contracts

After a thorough analysis of how your single-location company makes and receives its telephone calls, you can determine whether a move to VoIP is worth making. That said, you also need to know your company’s long-term plan so that you can factor your goals into any VoIP design.

Another significant factor is whether or not the company is encumbered by any current contracts. If they just signed a three-year lease for non-VoIP PBX and all its telephone stations, the lease costs must be considered in any plan. Any carrier services contracts can usually be terminated without penalty or can be modified with a new term, but now running with VoIP.

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Evaluating Existing Networks

After you analyze your company’s billings and contracts, you should end up with a spreadsheet that lists all one-time and monthly recurring charges by line item. When your company sees what they are paying, it’s amazing how quickly they lose any preconceptions that they are a small company. It is typical for clients — even small single-site companies — to not realize the total cost of their current infrastructure.

It became immediately apparent that Keystone Mortgage could benefit from a VoIP telephone system. They could pay for it with the savings they would realize from reducing POTS lines and toll charges. They had no dedicated transport lines in the picture. They had a LAN and were paying a monthly lease charge for an e-mail server, but the company leasing it required an additional contract to actually make the server work in Keystone’s LAN environment. Keystone’s president had not signed the contract for the extra work because one of the agents, who had some tech knowledge, said he could do the extra work at no cost, but it was not happening.

There were so many things that this company was doing in a less-than-optimal way; the situation begged for a line-item analysis, as shown in Figure 13-1.

Keystone’s annualized expenses added up to nearly $156,000. They were pouring money down the drain. When I showed the president the spreadsheet in my follow-up meeting, he was overwhelmed and highly motivated to listen to solution alternatives.

Breaking down the costs of POTS telephony

Much of Keystone’s recurring costs were wrapped up in their use of intralata calling. Each of the agents had a daily calling quota, and they reached their quota each and every day. The average number of calls per agent per day was thirty-eight to forty-seven, including twenty-one intralata calls. The agents averaged three intrastate calls per day, but they wanted to expand this even more. The remaining calls were to the local calling area. Keystone also had significant outbound fax calls that added minutes to all calling areas.

Keystone Mortgage had no idea of the carrier usage cost of the calls they made. They did not distinguish calls to the local area from calls to the local toll area. (See Chapter 3 for more on call types.) Most people draw a distinction when the call is across the state or even out of state. It was no surprise that

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the company’s expansion into the nearby regional toll areas added horrific usage charges. This factor alone made them a candidate for VoIP.

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Breaking down the costs of computer networking

There was even more to consider when it came to computer networking. To do VoIP correctly, you need a computer network somewhere in the picture. Keystone had a fledgling Ethernet LAN running off a leased LAN switch. They were paying an outside contractor $34 per month for the privilege of connecting their computers to this switch.

Keystone was paying the same contractor $418 per month for an e-mail server. The contractor installed the server and connected it to the LAN switch. All computers could see the server on their individual computers but could not connect because the employee computers did not have a required piece of software installed. The contractor delivered this software (called the client software) with the server, but the contract for the billable time to install the client software was not signed. In addition, no provisions had been made to connect either the LAN or the server to the outside Internet.

Putting VoIP to Work

The optimal solution to Keystone’s problems could be realized by setting up an efficient data network capable of handling VoIP. The company needed to add a multifunction gateway to their LAN. To connect to the Internet, they needed a dedicated T1 line that would terminate on this gateway. The T1 line would provide the level of digital bandwidth needed for both data and VoIP.

They also needed an Internet service agreement to provide access and VoIP telephony hosting services over this dedicated T1 line. The agreement would provide e-mail accounts for all, a Web site for the company with unlimited storage, and their own domain name. Internet access over the company network would put an end to the need to share computers with dial-up lines. Keystone would now be able to do business and advertise their services on the Web at high bandwidth levels.

The existing lease contracts did not have a lock on them, so Keystone was able to terminate them immediately, resulting in a savings of $452 per month. The new VoIP servers more than replaced whatever applications this lease arrangement was trying to accomplish.

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Too good to be true?

Supporting your telephony calls

For supporting calls primarily to the local calling areas, I recommended a PRI line. (There was no getting around Keystone’s local calling requirements.) The majority of toll calls and faxes could be made “toll free” over the dedicated T1 line through their new hosted VoIP service. The savings would include calls or faxes to any toll area anywhere in the country and enable Keystone to expand their market reach to any area in the United States with no additional toll charges. Before VoIP, they were trying to figure out how to get the revenue to pay for a new office across the state in the Philadelphia region. Now they were happily looking at how to add agents to their present location, if and when needed, to sell their services across the country.

Much of the cost for the conversion to a VoIP environment would come from their savings on recurring toll charges. To understand how it is possible

to manage these costs to your company’s benefit, take a look at Keystone Mortgage’s costs, as illustrated in Figure 13-2.

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These added services solve a large part of Keystone’s headaches and support their strategic mission plans to the maximum. This solution can occur only if Keystone uses the dedicated T1 line that runs from the company’s gateway to the VoIP/Internet provider.

As you can see in Figure 13-2, Keystone’s startup cost for the conversion was just under $62,000. That’s a lot of cash for a small company to cough up, but now they are rolling in the dough. They got their money back in six months, revenues are up 28%, and they are talking about expanding into other states and renting the floor above them for new staff. Soon they will no longer be considered a small company.

Financial Analysis

For small single-site companies, demonstrating the cost benefits of VoIP is not overly difficult. Keystone Mortgage, for example, had only fifteen people in the company, but they had an annualized expenditure of $156,000 for their existing infrastructure. For that kind of money, the staff should not have to share dial-up modem lines for Internet access.

Expansion plans should not be complicated by unnecessary costs resulting from traditional circuit-switched phone systems. Many small single-site companies could probably identify with the savings experienced by the implementation of VoIP at Keystone Mortgage. Just compare what they were getting and paying under the old system and the new system.

More importantly, look beyond the money savings and see the other types of value they gained. They have become a much stronger company with all kinds of scalability. Morale has improved along with productivity. They were able to expand into markets across the state without having to move anything, add anything, change anything, or even pay anything more.

Figure 13-3 provides the financial analysis summary for the Keystone Mortgage case study. It totals their revised monthly operating expenses, savings, and payback period. This summarizes the savings for both the circuitswitched portion of their infrastructure and the dedicated, packet-switched portion.

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When I first began working with Keystone Mortgage, the president had no idea what a T1 line was, and in fact did not know such a thing existed. He thought all telephone lines were the same and that all phones just plugged in and worked. He was totally blown away when he got his new VoIP phone and was able to have the company’s new Web page on the phone’s screen. He said, “Great, now I can surf to the stock ticker Web site and get the latest rates.” He was starting to see immediate benefits of the VoIP conversion.