You come home after a long day at work, exhausted mentally and physically, and can hardly keep your eyes open. However, your brain has yet to turn off from work. It’s normal for entrepreneurs to grind the hardest — you’re passionate about what you’re doing. However, if you’re feeling burnt out, don’t have enough hours in the day to get everything done, or are maybe even holding the business back because you lack a set of skills, it may be time to get some help. While you can hire people to work for you in-house, there’s also the option of outsourcing.
Outsourcing is a growing market. Clutch, a company that specializes in connecting other companies, surveyed 529 small business owners and managers in 2019 and found that more than one-third outsourced a business process, while 52% planned to do so.
However, companies aren’t only looking to other companies for help. According to Upwork, freelancers contributed $1.3 trillion to the U.S. economy in annual earnings in 2021, which was up $100 million from the previous year.
There are real benefits to outsourcing, but is it for you?
First, what is outsourcing?
Outsourcing is a business practice that involves hiring an external party to perform a task in place of an in-house employee. Some businesses outsource specific projects, while others may outsource essential functions. For example, essential functions that are commonly outsourced include:
- Bookkeeping
- Accounting
- IT services
- Customer service
- Content creation
- Marketing
- Human resources
- Recruiting
- Janitorial services.
Some of these functions can be performed by an independent contractor. However, business outsourcing can also involve hiring a larger firm to take care of a set of functions.
Any work outsourced to a company within the same country is called onshoring, whereas outsourcing to a company in another country is called offshoring. You’ve probably witnessed the end result of both options firsthand when calling customer service for your internet or credit card company, for example.
As a business owner, you may have started off as a “one man band” and may even take pride in that fact. But as your profits, demand, and even your team grows, there may be benefits to outsourcing some of the work.
Why do businesses outsource?
You may have heard business titans say things like, “Your business is only as good as your team.” It’s true — often great teams build great businesses. However, the main takeaway is that building a business is usually a team sport, not a solo mission. As a founder, you know your passions and likely know your strengths. The people you hire should help to fill in the skills or knowledge that you’re missing.
“Freedom to create, decide, and move your vision forward is where you should focus your energy as an entrepreneur. Putting a strong support team in place is the only thing that makes such freedom a reality,” wrote Michael Kay, Founder and President of Financial Life Focus, for INC., while paraphrasing Michael Gerber’s book The E-Myth.
There are times when you’ll want to hire people to work for you full-time, and then there are other times when outsourcing is the best option. So, when does it make sense for businesses to outsource? Here are three common reasons:
Reduce Cost
Hiring someone to work full-time costs money and time. In addition to adding another salary to your payroll, you’ll likely have to pay for health and financial benefits. Therefore, hiring someone or another business in the form of outsourcing generally costs less. Plus, businesses can outsource to experts who don’t need training which saves time, too.
Scale Production
As your business grows, you may not be able to produce goods you sell in-house anymore. For example, if you own a beaded bracelet company, you may have started out making each bracelet by hand. Eventually, you may have hired a few people to help you hand-make each bracelet. But, after a while your team simply isn’t capable of keeping up with demand. This is when it may make sense to outsource the production.
Acquire Specific Skills
Some projects require a specific set of skills that you and your team don’t have, and won’t require for the long term. Rather than hire someone full-time, you can outsource business for the short-term. As an example, you may need someone to build your company website or design a logo. You may find that an outside contractor or company that focuses on a specific type of work may be able to help complete a specific task at a high-level and more quickly than someone in-house.
The difference between outsourcing vs. in-house hiring
Deciding when to outsource versus hiring in-house can be a tough decision. The main thing you need to determine before outsourcing is the cost difference.
You may also want to consider your company’s core functions. For example, if you own a recruiting company, pitching clients and finding job candidates is a main function. You may not want to outsource someone to research candidates as it’s critical to your business’ success. However, you may outsource your accounting. Bookkeeping is essential to your company, but it’s not what actually drives your business forward.
Outsourcing pros and cons
Pro: Access to a larger talent pool
If you need someone to be in the office, warehouse, or another one of your facilities, you often only have a set local talent pool to hire from. However, if the work can be done remotely, outsourcing allows you to expand the talent pool by hiring the most talented people, no matter where they live.
Additionally, outsourcing can help you work better across different time zones, if that’s important to your business. By hiring customer service agents in different time zones across the country, for example, you can offer better round-the-clock service to your clients.
Pro: Lower labor costs
When outsourcing, you can shop around for the right service at the right price for your business, whether onshore or offshore. Hiring someone in-house is often a bigger financial commitment than outsourcing for a one-time project or non-core function.
Pro: Return focus to core functions
By outsourcing repetitive, administrative, or even seasonal tasks, your team can better focus on core functions and play to its strengths. Let’s say one of your employees is incredibly talented in sales, but they’re also doing a big chunk of administrative duties, their time isn’t being spent as well as it could. Their time working on sales is more cost effective for you in the long run, so it makes sense to outsource their administrative duties.
Con: Risk degradation of company culture
In-house employees are more likely to be totally on board when it comes to your company’s mission. They are committed to the team and feel passionate about making the business grow.
If you outsource too many core functions, you could risk hurting your company’s culture. Outsourced teams may lack connection to the brand or find it hard to work with your other employees. Outsourced teams will simply keep things running.
Con: Risk to consistency in quality of work
Anytime you delegate a task, you’re releasing control. Releasing too much control by outsourcing can result in work that’s not up to your standards. Those working outside of your business may not fully understand the objective or the company’s values; their performance might not necessarily match those who work in-house, who are solely focused on your company.
Types of work that are commonly outsourced
It is common to outsource one or more projects or functions of a business. The following are a few types of tasks that are commonly subject to outsourcing:
- Highly-skilled: These types of tasks are often contracted out to consultants that provide expertise on a project or short-term basis.
- Specialized: Some examples of specialized outsourcing include tech or IT, accounting, graphic design, content creation, human resources, recruiting, public relations, etc.
- Administrative or repetitive: These are the jobs that in-house employees generally don’t want to do, or have time to do. A few examples include data entry, customer service and shipping.
Should your business outsource?
So, is it time for your business to consider outsourcing? As mentioned, there are significant pros and cons to consider. Above all, when considering outsourcing or hiring in-house, you should perform a cost-benefit analysis to determine what makes the most sense financially.
According to Deloitte’s Global Outsourcing Survey in 2020, 71% of businesses choose to outsource due to cost reduction. The other reasons are flexibility (40%), speed to market (20%), access to tools and processes (15%), and agility (15%).
If you do find that outsourcing will reduce costs, also consider how it will drive your business forward. Short term gains are good, but the long term gains are just as important.
