The Art of Cost Optimization - Least Cost Routing and Its 7 Benefits

When it comes to VoIP traffic, deciding which routes to use to run your traffic is an important business decision. However, there are many challenges one must face while making this decision.

Factors such as route stability, QoS, congestion, network status, etc. play a part in this decision-making process. Another important factor is the overall cost associated with using any particular route to run your VoIP traffic through.

The fact that these factors are dynamic only adds to the challenge of managing and adjusting the flow of traffic through different routes. The good thing is that technology has made tremendous progress and there is a simple way of managing all of this.

The technology in question here goes by the name of Least Call Routing (LCR). What is it, how does it work and what are its benefits? I shall answer all these questions herein.

Let’s get started then!

What is Least Cost Routing (LCR)?

Least Cost Routing (LCR) in VoIP refers to a routing technique used by VoIP service providers to determine the most cost-effective path for routing phone calls.

It involves analysing various factors such as call rates, tariffs, and quality of service parameters to select the route that offers the lowest cost while still meeting the required call quality standards.

LCR aims to minimise costs associated with call routing by considering different available routes and their associated expenses.

It takes into account factors such as the rates charged by different carriers or providers for specific destinations, any additional fees or surcharges, and the quality of service offered by each route.

The process of LCR involves calculating the cost of each available route, often by comparing the rates and fees charged by different carriers or providers.

The selection of the route with the lowest cost is typically based on a balance between cost savings and ensuring satisfactory call quality.

Quality parameters such as call clarity, latency, and network congestion may also be considered in the decision-making process to avoid compromising the user experience.

By implementing LCR, VoIP service providers can optimise their call routing decisions, leading to significant cost savings, especially when handling a high volume of calls or making frequent long-distance or international calls.

This routing technique enables carriers to maintain competitive pricing while delivering reliable call quality to their customers.

Let’s now check how LCR accomplishes all of this!

How does Least Cost Routing work?

Imagine you're a VoIP service provider responsible for routing phone calls from your customers to different destinations around the world.

Your goal is to minimise costs while ensuring reliable call quality. To achieve this, you implement LCR in your call routing decisions.

Here's how it works:

Step 1 - Analysing Available Routes

As a first step, you analyse the available routes to various destinations. Let's say you have two routes to route calls to a specific country - Route A and Route B.

Each route is provided by different carriers and has different call rates and quality of service parameters.

Step 2 - Assess Call Rates and Quality

To determine the cost-effectiveness of each route, you consider the call rates offered by the carriers. Let's say Route A has a call rate of $0.02 per minute, while Route B has a slightly higher rate of $0.03 per minute.

However, you also assess the quality of service parameters for both routes, such as call clarity, latency, and network congestion.

Step 3 - Balance Cost and Quality

Based on the call rates and quality assessment, you consider both cost and quality factors to make the routing decision.

While Route A has a lower call rate, it experiences occasional network congestion and slightly lower call quality. On the other hand, Route B offers better call quality but at a slightly higher rate.

Step 4 - Select the Optimal Route

Considering both cost and quality, you select the route that strikes the right balance. In this case, even though Route A has a lower call rate, you decide to route calls through Route B due to its better call quality and acceptable cost.

Step 5 - Dynamic Routing and Call Volume

LCR also incorporates dynamic routing based on real-time factors. Let's say during peak hours, Route B becomes congested, affecting call quality.

In this situation, your LCR system automatically switches to an alternative route with better call quality and acceptable cost, ensuring uninterrupted service.

Please note that the example provided is simplified for illustrative purposes. In real-world scenarios, LCR involves analysing a multitude of routes, carriers, rates, and quality factors to make informed routing decisions.

Top 5 Reasons Why Least Cost Routing Is Needed

The communication landscape is changing as internet penetration increases around the world and more people are opting to work remotely.

Here are the top 5 reasons why LCR is needed to fulfil the growing demand for communication around the world.

1. High Operational Costs

A big proportion of the operational costs of VoIP is the expense incurred in routing a call from its origination to its termination. You essentially pay for using the call router from the caller to the callee.

Least Cost Routing (LCR) enables service providers to minimise operational expenses by selecting the most cost-effective routes for call routing.

By analysing call rates, tariffs, and fees offered by different carriers, providers can achieve significant cost savings while maintaining competitive pricing.

LCR tremendously helps in reducing expenses for long-distance and international calls, efficiently utilising carrier networks, and optimising resource allocation.

This cost optimization ensures profitability, enhances competitiveness and enables providers to offer affordable communication solutions.

2. Competitive Pricing

Competition in terms of pricing is always beneficial for the end consumer. Moreover, as the pricing becomes more affordable, more people attain access to communication.

This is very important as a large proportion of the population in the developing world still does not have access to reliable and affordable communication.

Making the world a more connected place drives overall economic growth. International trade and commerce are boosted when previously disconnected people start communicating with one another.

3. To Fulfil Quality of Service Expectations

Communication needs to be clear and effective to be fruitful. Thus, ensuring adequate Quality of Service (QoS) is important. Moreover, consumer expectations for a better customer experience have grown significantly in recent years.

If we consider the points emphasised above, it would seem like cost reduction was the way to win. However, only reducing costs will create a different problem. Cutting costs beyond a certain threshold results in degradation of quality.

Thus, cost reduction at the cost of quality of communication is counterintuitive. This is where LCR comes in. It enables VoIP Carriers and Service providers to minimise costs while ensuring adequate QoS and it does all of this automatically!

4. Improve Flexibility and Adaptability

The thing about VoIP operations is that a lot of things are dynamic. The performance of routes, QoS, calling rates, additional charges and other requirements keep changing at all times. Thus, one needs to actively manage everything.

However, with the Least Cost Routing (LCR), all of this becomes hassle-free. LCR does this by tremendously improving adaptability by picking and selecting the most optimal routes to run your VoIP traffic.

It takes into account the network condition, QoS, calling rates, call volume and other parameters while taking call routing decisions. This eliminates the need for you to actively manage your VoIP traffic.

Moreover, as all of these adjustments are done in real time, it offers more flexibility in terms of ensuring you’re meeting your business goals.

5. For More Efficient International Call Routing

International calls are a lucrative and important segment of business for any VoIP carrier or service provider. One has to be equally careful when it comes to routing these calls as the costs and customer experience expectations both run high.

The cost of routing international calls varies greatly based on the destination and the provider for the particular route in question. As a result, international communication has historically been expensive.

Passing down costs directly to the end consumer inhibited the growth of affordable and effective international communication. However, with LCR, the international calling landscape is changing.

As LCR allows for extensive cost optimisation while maintaining QoS, VoIP carriers and providers can offer international communication at affordable prices. Being a lucrative segment, higher volumes further translate to more profits.

Now you know why Least Cost Routing has become necessary. Let us head on and understand the benefits it offers.

7 Benefits of Least Cost Routing

Least Cost Routing (LCR) in VoIP (Voice over Internet Protocol) offers several benefits for VoIP Carriers and UCaaS operations.

Here are the key advantages of implementing LCR.

1. Cost Savings

First and foremost, as the name suggests, Least Cost Routing allows for a higher level of cost optimization in terms of operational costs. Thus, resulting in significant cost savings for the VoIP carriers and providers.

The process begins with analysing call rates, tariffs, and fees offered by different carriers. Subsequently, LCR selects the most cost-effective routes for call routing.

LCR also allows providers to dynamically adapt their routing decisions based on real-time factors such as carrier rates and network conditions. This flexibility optimises resource allocation and prevents overutilization or underutilization of network capacity.

Moreover, it also reduces costs associated with inefficient routing. Thus, with LCR, VoIP service providers can maximise their profit margins by reducing costs,

2. Enhanced Profitability

Least Cost Routing (LCR) facilitates cost optimisation to a significant extent. Lowering costs directly translate into higher profit margins for the VoIP carriers and providers.

As stated earlier, a major proportion of a VoIP carrier’s or provider’s expense is the cost incurred in routing calls from origination to destination. One is required to pay for the route a call takes from the caller to the callee.

Thus, by optimising routing by focusing on cost reduction, LCR targets the main component in the expenses. This directly results in a higher profit margin for VoIP carriers and providers.

Another way in which LCR enhances profitability is by offering higher QoS and more efficient utilisation of resources. As LCR makes use of the most efficient routes, wastage of resources is minimised, further adding to the profits.

We shall cover how QoS improves profitability a bit further down this article.

3. Increased Flexibility

There are two big postulates in the world of VoIP and communication. The first is that the flow of calls should never face any interruptions. The second one states that everything is subject to constant changes.

The first one is pretty self-explanatory, if the flow of calls is interrupted, you lose a lot of revenue. If the interruption prolongs for an extended period, the future of your VoIP business will become uncertain.

The second one implies that call rates, additional carrier charges, route performance, the status of the overall network, etc. are constantly changing.

Thus, a VoIP carrier or operator needs to ensure enough flexibility to account for such changes and ensure an uninterrupted flow of calls.

Here steps in LCR and streamlines the entire process. It allows VoIP carriers and providers to have multiple redundant routes to run their traffic through. LCR optimises routing by checking for network performance, costs, QoS, etc.

Thus, LCR ensures enough flexibility to ensure an uninterrupted flow of calls while also minimising operational costs.

4. Improved Call Quality

Consumer expectations in terms of customer experience have risen significantly across the board in recent years. Personally, I would say that technological progress has been strong enough to warrant this expectation.

Now consider everything we’ve discussed up to this point. Every VoIP carrier or provider has multiple routes in place for running traffic from one point to another. Then there is the added complexity of managing routes as these are quite dynamic.

Thus, ensuring consistent delivery of high call quality becomes a challenge and a necessity at the same time. Thankfully, LCR helps VoIP carriers and providers overcome these challenges gracefully.

First and foremost, LCR monitors all the routes for different performance indicators. This includes QoS, network status, level of congestion, etc. All of this monitoring is conducted in real-time.

This allows LCR to pick and choose the routes that offer the best mix of call quality and overall associated costs. Thus, VoIP carriers and providers can deliver higher call quality at affordable prices consistently.

5. Redundancy and Failover

Let’s rewind back just a little bit and focus on the first postulate of the VoIP and Communication world. The flow of calls should never face any interruptions.

I have already explained why this needs to be ensured so we will not delve into it. So let’s address one important question, what warrants route redundancy and failover?

The simple answer is the dynamic nature of these routes. A lot of factors can affect a particular route and its suitability for carrying your traffic.

The call rates may increase, the route may suffer from congestion, the QoS might not be good enough, and the possibilities are numerous. The possibility of these very instances warrants the need for route redundancy and failover.

Having redundant routes in itself is not enough to ensure an uninterrupted flow of calls. One also needs to actively monitor and adjust routes as per changing conditions. This is a task that LCR manages quite capably.

In an instance where a particular route becomes unsuitable for your traffic, LCR will failover the traffic to the best alternate route. This will ensure the flow of calls is not interrupted and QoS, costs, etc. are within set limits.

6. Scalability

Least Cost Routing (LCR) offers significant benefits in terms of scalability in the VoIP industry. As a service provider's customer base grows and call traffic patterns change, LCR provides the flexibility to scale call routing operations accordingly.

LCR enables providers to dynamically adjust their routing decisions based on real-time factors such as carrier rates, call volume, and network conditions.

This adaptability allows providers to handle increasing call volumes efficiently and allocate resources optimally.

Additionally, LCR facilitates the addition of new carriers and routes as the business expands. Providers can analyse and incorporate new carriers into their routing strategies, ensuring scalability and the ability to accommodate growing call traffic.

7. Competitive Advantage

Least Cost Routing (LCR) provides significant benefits in terms of competitive advantage. By implementing LCR, service providers can differentiate themselves from competitors and gain a competitive edge in the market.

LCR optimises call traffic for both cost and call quality. This enables them to offer competitive pricing to customers, attracting cost-conscious users seeking affordable communication solutions.

By leveraging cost-effective routes through LCR, providers can set lower rates while maintaining reasonable profit margins. This competitive pricing strategy positions them favourably in the market and allows them to capture a larger market share.

Furthermore, LCR enables providers to deliver high-quality calls by selecting routes with optimal performance. This enhances customer satisfaction and builds a positive reputation for reliable communication services.

With that, we’ve covered all the basics you need to learn in this introduction to Least Call Routing. Let’s wrap up then!

Ending Notes

There are a lot of things that we have learnt today and the prime among them are that the flow of calls should never face interruptions and that the routes are dynamic.

Managing the routing of calls while ticking all the necessary boxes is a tricky affair if done manually. Gladly, we have Least Cost Routing to take care of all of this.

From cost optimization, and improving call quality to ensuring redundancy and failover, LCR makes the lives of VoIP Carriers and providers a lot easier.

Want to experience the benefits of LCR for yourself? Sign up today!