Shrinkage | Meaning and Definition (2024)

What is Shrinkage?

Shrinkage, as the name suggests, is simple and corresponds to the time span during which the employees or workers are paid even after they are unable to take or handle calls. Broadly speaking, the term is defined and includes every activity that keeps an agent away from receiving calls or off the phone. Its criteria include offline activities, holidays and leaves entitlement, outbound calling, and breaks. Once the employee gathers all the information about being away from the phone, the total time is calculated for the above-mentioned activities against the working days annually. Generally, it is considered important in those companies and organizations which have tele calling as a significant part of their business, likely Business Process Outsourcing (BPO).

How to calculate the Shrinkage percentage?

Shrinkage refers to the process of calculating the percentage of employees unavailable to handle calls during a specific span of time or a particular time or day. It can be calculated in two ways:

• Planned way
• Unplanned way

Planned shrinkage consists of leaves and week-offs, whereas unplanned shrinkage consists of half-day and absenteeism.

Calculation of Shrinkage = Planned Shrinkage + Unplanned Shrinkage.

Planned Shrinkage = [Total number of leaves + Total number of week-offs] / Total headcount.

Unplanned = [Total number of absent + (Half-day/2)] / Total roster-count.

Mostly, it is calculated in the BPO(Business Process Outsourcing) industry. It is calculated using the call center shrinkage formula. First, we must first identify the number of staff requirements at a particular time or shift.

After calculating the staff requirements, estimate the number of workers who cannot pick up calls during that interval. This amount may vary every time but typically ranges between 10-40%. With this number, you should divide the base staff requirement by that result to arrive at the final number of workers you should schedule at a particular time.

Let’s understand this using a simple example.

With a shrinkage rate of 30% and availability of 210 call center staff in the day shift you should divide 210 by (1-0.3) for a total of 300.

Now you know that you have a staff of 300, but 30% of the staff can’t answer phone calls for specific reasons. The remaining 210 people will be able to attend the call, and the phones will be adequately covered.

Shrinkage in terms of hour

This formula determines call center shrinkage for an individual agent’s performance.

Shrinkage%= Total hours of external + Total hours of internal shrinkage/ Total hours available* 100

External shrinkage- It refers to activities that prevent employees from answering phone calls and are outside the organization’s control.

These activities include- Lateness, Sickness, Holidays and Paid breaks (depends upon shift)

Internal shrinkage- It refers to all those internal factors that prevents employees from answering phone calls and can be controlled to some extent.

These activities include- System Downtime, Meetings, Coaching and training sessions, unplanned facility issues etc.

So it’s necessary to always keep track on shrinkage rate so that call centers can improve their efficiency. Appropriate measures should be adopted if the shrinkage rate is continuously increasing. It is the sign of underperformance of employees of an organization.

Now we will come up with a question that “How to reduce shrinkage rate?”

We have learned how to calculate the shrinkage formula but it’s important to know what should be the appropriate and acceptable shrinkage percentage. Of course it may vary from industry to industry but the most accepted figure stands between 30% and 35% in the BPO industry.

The shrinkage percentage is calculated based on the 12 months of data figures.

Reducing call center shrinkage is necessary to improve efficiency and enhance customer experience.

There are various measures that can be adopted to control the increasing shrinkage rate in an organization-

Someone has rightly said, “All work and no play makes Jack a dull boy”. The same rule applies in organizations also. Long hours of continuous working can negatively impact the performance of the employees. So proper breaks and activities should be scheduled during non-peak hours so their performance wouldn’t be affected.

This helps reduce the rate and improves the organization’s overall efficiency.

It involves monitoring various metrics to check employee performance such as call volume, handle time, and customer satisfaction. Based on these metrics training sessions and appraisals can be planned for the employees.

This results in a reduction of shrinkage rate and an improvement in efficiency rate.

Management should organize performance appraisals to motivate employees to perform better and achieve timely targets. Proper standards should be set according to which appraisals should be provided.

For example- The manager set the target of 200 successful calls monthly. If the employee achieves the target, he will be provided with a 10% increment in salary as a bonus amount.

To quickly detect and fix issues, call center managers should check call center key performance indicators. These metrics include tracking call volume, handling time and other metrics that lead to business decline.

By regularly monitoring these metrics, managers can spot problems early and take quick action before the situation worsens.