Why Do Businesses Outsource?

Outsourcing in business is a truly complex question. , Why do companies outsource exactly? There’s truly not a single reason, but rather several, and it depends on the company’s context and actual needs. Let us remember that outsourcing is when a company hires external help, but the reasons may, and will, vary. Some of the most common motives, however, are the following ones:

• Reduce and control costs of operation (this usually the main reason).

• Improve the company’s focus.

• Liberate inner sources for new purposes.

• Increase efficiency for some time-consuming functions that the company may lack resources for.

• Use external resources as much as possible.

• Sharing risks with a partner firm.

Lowering Cost

You may be looking at the cost to outsource your tax returns, but not looking at the overall savings that you will receive. Compared to hiring a internally, outsourcing is a mere fraction of the cost

Cost Save:

• Medical insurance

• Vision insurance

• Dental insurance

• 401(k)

• Transportation allowance

• many more

Benefits of outsourcing specific processes

Your biggest cost savings, in terms of saving money, time, and stress, is to outsource things that aren’t tied to your strengths.

*Reduce labor costs

Hiring and training full-time skilled workers is expensive, especially for shorter-term projects.

When you outsource, you convert fixed labour costs into variable costs, meaning you only pay for the services you consume. This gives you staffing flexibility that just doesn’t exist with in-house employees.

Outsourcing allows you to tailor your service consumption to your needs. You only pay for what you use and can seamlessly scale your consumption when business picks up or slows down.

For instance, you probably don’t need a full-time in-house CFO when you are doing under $10 million in annual revenue. It’s an important job that can’t be ignored, but you don’t have enough work to justify a full-time salary.

By hiring a fractional or virtual CFO, you only pay for the service you consume but retain the reliability of a dedicated employee.

*Control cash flow

When you outsource, you convert a fixed cost (a full-time salary) into a variable cost (a pay-what-you-need service). This frees up your cash flow for investment in other parts of your business.

For example, back-office tasks typically come with their own expenses like office space, furniture, copier paper, etc. Even remote teams come with costs, like equipment and access to software tools. These expenses don’t seem like much, but they add up quickly.

You may be able to squeeze one person into your current office, but if hiring that new assistant means moving to a bigger (and more expensive) space, it may be cheaper to hire a virtual assistant agency to meet your needs. Yes, the outsourcer technically builds their costs into the fees they charge, but those overhead costs are spread out across all of their customers.

You could funnel the cash you save into improving your products or running marketing programs. This is especially useful at the early stages of new projects, like launching a new product or reaching into a new business vertical.

*Access top talent

Hiring a new team member often requires expensive recruiting and training. You have to teach them your processes and workflows (or develop special processes just for them). If your team isn’t async-first, there is also the sunk cost of being in a lot of extra meetings and/or Zoom calls.

When you work with an agency, consultant, or freelancer, they all come with specialist knowledge. (Or, at least they should)

Furthermore, they likely have access to skills and tools you may not need today but will someday. If they don’t have someone on staff who can solve your problem, they likely have a network of specialists with complementary skills they can pull from. You don’t have that sort of flexibility with in-house employees.

For example, let’s say you have a designer on your team, but he specializes in print materials. He’ll whip up a great brochure, but he doesn’t know much about digital products.

When it comes time for a new website, your designer won’t be much help. If you outsource your design work to a creative agency, however, you will have access to designers with a broad range of skills.

Outsourcers come with specialist knowledge, expertise and experience you couldn’t afford to hire on your own. By focusing on their specialty, outsources stay abreast of industry changes and trends, learn new techniques, and constantly develop their skills.

Furthermore, outsourcers have access to skills and tools you may not need today but will someday. If they don’t have someone on staff who can solve your problem, they likely have a network of specialists with complementary skills they can pull from. You don’t have that sort of flexibility with in-house employees.

5. Retain your full-time employees

Employee turnover is painful, especially these days. When someone quits, all that money you spent on hiring and training walk out the door with them. Turnover at the wrong time (and is there ever a right time?) can disrupt business operations and add more stress to your team.

Outsourcing helps in two ways:

• As your team levels up, you can promote them (with a raise and new responsibilities) and then delegate the repetitive processes and tasks.

• Delegating also adds a layer of consistency in your business. For example, if your full-time customer support manager quits, you will need to back-fill the role. However, if you have 3-4 freelance support reps handling tickets, you have the time to find a great new manager instead of having to do all of the support yourself for a period of time.