What should my interconnect voice platform cost?

You know, this is one of those questions we hear carriers discuss all of the time. What is the value of your interconnect voice platform in actual dollars and cents?  What is the “right" cost of the solution? These are obviously great questions. Ones that, after careful, thoughtful analysis should be answered, and can be answered, with a high degree of accuracy.

To determine the “right” cost of your interconnect voice platform, you might want to start by looking at your margin dollar from your interconnect voice business. Retail % margins are obviously higher, so using a pure interconnect margin dollar provides the lowest revenue basis for determining cost.

So, if you have $1.00 of margin, how do you allocate it? Here’s a suggested model:

$1.00 of Margin
$0.25  for network costs (e.g. switches, SBCs, trunks, network management systems, all the network stuff)
$0.25 for all support costs (customer service, Tier 3 engineering, NOC etc.)
$0.10 for all sales and marketing related costs (salespeople, commissions, expense accounts, travel etc.)
$0.10 for all other overhead (finance, management, IT systems, etc.)
$0.05 for financial carrying costs (bad debt, float, prepayment, etc.)
Total left:  0.25  

So, $0.25 from that margin dollar is what’s left to cover the interconnect voice platform and profit. Remember, today’s interconnect voice platform is the Enterprise Resource Planning tool for the interconnect voice business that all carriers engage in on a daily basis.

We know profit from interconnect voice targets are 10% or 20% depending on the market (Sometimes they are a lot less). Let’s go with 10%. That means you have $0.15 left for all other things (bad debt, cap-ex, new purchases, and miscellaneous, and of course, your voice interconnect platform.).  So how do you arrive at how much you would allocate to your interconnect management platform?  Well, we have a lot of data and we see the numbers ranging from $0.08 to $0.15 cents depending on the size of the implementation and the capabilities required.

So, that’s it. We think that the right cost for an interconnect voice solution is in the neighborhood of 0.08 cents to 0.15 cents of every margin dollar.  

If you can get lower than that, that’s great. Obviously you have either scaled your business or you have made capital investments that have stopped amortizing, and now are in the 4th, 6th or 8th year of utility.  

What do you think the right cost is for an interconnect voice platform?  Do you really think your interconnect voice platform can cost less? Why?