When you’re looking to improve your company’s efficiency, one aspect you can consider is outsourcing some parts of the business that make up your overhead.
Just like how you’d bring on a subcontractor to handle some of the tasks that aren’t your company’s specialty, outsourcing certain departments allows you to pass on duties that need to be done to third-party organizations. Some of the categories you can look into outsourcing include administrative jobs like bookkeeping and HR compliance, marketing and even sales.
“Conducting a cost-benefit analysis is the fastest way to determine if certain aspects of your business should be outsourced,” says Jim Westover, president of LandOpt. “Understanding your costs for a particular function and comparing them to what an outside provider would charge is a good start.”
He encourages researching the market and getting bids from at least three sources so you can get a good understanding of the different pricing structures as well as the capabilities and qualifications of prospective providers.
“Do as much research as you can,” Westover says. “Consider which providers offer you both the best value as well as the expertise and resources needed to facilitate growth. Make sure you understand all the services the prospective sources offer and be certain that the one you select aligns with your vision.”
Benefits of Outsourcing
Westover says that typically three to five percent can be saved by outsourcing. This can also create efficiencies and lead to economies of scale.
“Depending on the department, you may be acquiring a skillset that would be hard to fill and develop internally, or very costly to do so,” he says. “A lot of outsourcing entities offer many services under one roof with employees specializing in marketing, HR and finance. As these functions are outside your typical scope of work, you may be better off letting someone with more expertise hire and manage people with those backgrounds.”
By passing some of these tasks on to a more qualified third party, you can focus on what you do best and grow the business.
Drawbacks of Outsourcing
If control is very important to you, it may be harder to be open to outsourcing. Also, you want to make sure you’re not outsourcing an aspect that is your company’s competitive advantage, such as excellent customer service.
“I think one of the drawbacks that comes up often is the loss of the personal touch, especially with customer service,” Westover says. “I’ve heard this too often in my career as entrepreneurial entities get bigger and customers lose contact with the owners.”
Another con of outsourcing is you won’t have a full-time staff member who is just down the hall. Communication could be more challenging having to call or message a third-party provider every time an issue comes up.
Outsourcing also isn’t always necessarily a cheaper option. In the case of hiring a marketing firm, they could be far more expensive than having someone in-house handling your branding and social media presence.
As your company grows, conduct a cost-benefit analysis to determine when or if any of these services should be brought in-house.
“Specific skillsets like those provided by a full-service marketing company may be too expensive to bring in-house,” Westover says. “At the same time, as the business grows the workload in some departments may become such that using a full-time employee is the most efficient approach.”