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Managing Cost to Maximize Profit

In the struggling economy of today it is more important than ever for companies to “watch the bottom line.”  Especially important to the task of managing profit margin is managing direct cost.  ECSG is committed to assisting companies in the Telecommunications industry with doing just that – managing direct cost.  Profit margin, in it simplest form, is the amount of revenue over and above the cost of a particular item.  In order to make a profit it must be possible for revenue to be greater than cost.  It seems astronomically simple.

The problem in the Telecommunications industry is that it is not always simple to determine the actual revenue or cost of network elements and resale accounts due to a number of factors.  

  • Fragmentation of Information Technology (IT) systems.

  • Poor integration points.

  • Multiple points of data entry at customer acquisition time.

  • Constantly changing billing elements from each carriers billing system.

  • Complicated tariffs and interconnect agreements

  • Special Contracts with volume and multi-service discounts.

  • The large numbers of invoices a CLEC receives as customers are added.

  • More than one customer can utilize a single network element.

These and other common problems make it difficult to match revenue to cost for a particular resale account or network element.

Figure 1 shows the typical flow of data in a resale environment.  The CLEC receives invoices and sometimes usage information from the vendor (usually an ILEC, IXC or another CLEC).  The CLEC then processes the invoice by reviewing the charges against the resale repository and the contract information to ensure that the invoice is correct.  If there are disputes then the CLEC will notify the vendor of the disputes and pay the invoice.  At the same time, the CLECs billing system is using the call data along with information from the resale repository to generate invoices to the end consumer and collect revenue.  The end result is that once the cost and revenue have been verified it is possible to measure the profit margin.

It is easy to see from Figure 1 that there are really not too many places to “adjust the machine” if the profit margin is too low.  There are three basic strategies: increase pricing, lower direct cost or decrease SG&A.  With expanding competition in most markets, it is increasingly difficult to tweak pricing plans to charge more for services and most companies have already cut their SG&A; so more focus is being placed on reducing direct cost as a means of increasing profit margin.

When it comes to cost there are several ways to ensure that the cost is as low as possible.  

  • The invoices from the vendor must be scrutinized for accuracy. Today many companies pay 15-25 percent more for their network cost than they should. Not paying for charges that you do not owe is a very important component of reducing cost.

  • Getting better agreements with vendors in order to reduce cost can make a large impact on the reduction of network cost.

  • Reviewing network elements against service offerings can reveal a surprising amount of opportunity to save money by changing from one type of service to another while continuing to offer your customers the same service.  For instance, utilizing Unbundled Network Elements instead of resale accounts can save quite a bit of cost in some markets for some vendors.

However, none of the methods of reducing cost can be implemented if you don’t have the tools to get the job done.   ECSG Inc. can help you manage your telecommunications costs in a number of ways. We understand how demanding the task of understanding and controlling your cost is.

We offer flexible licensing for all of our software, service and support solutions ranging from simple monthly maintenance to percentage-of-recovery pricing. Inquire today about how you can start saving money using our services.

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