Make Informed Outsourcing Decisions
Outsourcing can often save the day for small business owners, but it can also become a money pit. How do you know if outsourcing is right for you? Are there hidden costs? Here are some key factors to consider.
First, make a list of tasks and functions you’re thinking of outsourcing. Things like IT services, bookkeeping, HR functions, and answering services are commonly outsourced by small businesses. Generally, non-core activities and specialized functions are better candidates for outsourcing.
Next, consider the benefits of outsourcing the items on your list, looking at time savings, skills and expertise, and efficiency. Identify the activities you and/or your employees will be able to devote more time to doing if you outsource other tasks.
Now identify the risks associated with outsourcing the items on your list. Typical drawbacks to outsourcing are coordination and communication issues, quality control, and protecting confidential information. Remember that outsourcing relationships still require oversight. Also, take into consideration the impact of working with a vendor in a different time zone.
Measure the True Costs of Outsourcing
To understand the financial trade-offs, you will need to compare outsourcing fees against costs for handling the tasks in-house. Calculate your in-house costs, factoring in both direct and indirect costs like management time and overhead. Obtain estimates from potential outsourcing vendors. For an accurate comparison, you will need to include any one-time or ongoing internal costs of outsourcing to your financial projections. Consider the following:
- Direct fees paid to the outsourcing provider
- Management and coordination costs
- Technical setup and training
- Quality control and rework
- Lost productivity during transitions
- Confidentiality and security risks
- Unexpected incidentals
Carefully tracking all these cost factors is crucial to determining if outsourcing makes sense for your business. If it does, be sure to define your expectations and the appropriate metrics for evaluating outsourcing services before you begin your search for service providers.
If you would like to learn more about how this might apply to your business, let’s talk: