If you think small domestic call centers are a thing of the past and have been outsourced offshore, think again – there are over 15,000 small and mid-size call center businesses operating in the US alone, classified under SIC 7389 and NAICS 561421.
While the average call center employs nearly 300 agents, many businesses in this industry have fewer than 20 employees. The average annual revenues for private call center companies top $11,000,000. However, many small home-based call centers are much smaller – generating around $400,000 in annual billings.
Key value drivers for call center businesses
When it comes to valuing a privately owned call center, size makes a big difference. Indeed, larger firms with annual billings of $10,000,000 or more command valuation multiples that are more than twice those for small call centers whose revenues are in the sub-$1,000,000 range.
Call centers tend to be quite labor intensive and rely upon customer service rep recruitment and training. Businesses that have their direct labor costs under control tend to get higher valuations. Above average call centers keep their direct labor costs to within 50 – 51% or revenues.
Business valuation methods for valuing call center companies
You can choose a number of well-known business valuation methods to value a call center. However, as with many business services, call center valuations are often done using a combination of the market and income based business valuation techniques.
Call center valuation multiples
Private call center sales that took place recently offer you an excellent indication of what such businesses are worth. The best valuation multiples are those that give you the most accurate estimate of what a similar business is likely to sell for. Here is our list:
- Business sale price to EBITDA.
- Business sale price to annual gross revenues.
The spread between the low and high selling prices for the EBITDA based business value estimates is about 60% that of the revenue-based figures. We take this as an indication that business buyers and sellers tend to use EBITDA more often when pricing the “real-world” call center business sale deals.
Put another way, the buyers value business profitability above the revenue or business assets in this industry.
Valuing a day care center business based on its income
No call center valuation is complete without the use of at least one of the income-based business valuation methods. For larger call center companies the Discounted Cash Flow method is the usual choice.
You can determine the value of a small owner-operator managed call center as a multiple of its earnings, using the Multiple of Discretionary Earnings valuation method.
Business goodwill valuation for existing call center companies
Call centers that have been around and established a track record of success can command a substantial premium on the market due to their goodwill. To calculate what the business goodwill is worth you can use the well-known Capitalized Excess Earnings method.
As the name implies, this valuation technique lets you calculate the value of business goodwill by capitalizing a part of the business earnings. The idea behind this business valuation method is that superior earnings translate into higher business value.