Outsourcing vs Hiring In-House: Are You Comparing Apples to Oranges?

Are You Comparing Apples to Oranges

In the years my sister (co-founder) and I have offered our services to business owners we’ve come across a lot of business owners (BO’s) who have turned down our professional services and told us they’re going to hire employees instead. In some cases, that might be a smart route because of the industry they’re in and their needs for in-house staff.

However , when you’re trying to reach a goal in an area of your business that requires expertise and careful analysis, an employee is most likely not the best option in this case. It’s best to invest in a professional service with expertise in that particular department. It might seem too expensive and hiring an in-house employee might seem more cost effective than outsourcing but you’re comparing apples to oranges and many times, the investment you fork out for that professional service will more than double in terms of ROI.

In an article written by Cheryl Conner in Forbes in 2012, she shares a guest post by Ross Warners where he talks about how employees waste a lot of company time. The article points out “the distractions are endless,” adding that “many activities such as excessive meetings, co-worker interactions, office politics, and fixing mistakes are a few.”

So, how many hours are your employees really working in a day, a week, a year?

Compare an employee whom you pay $15 per hour for 8 hours per day. That’s $120 per day not including payroll taxes, plus all the other hidden costs that come with an employee (think supervising time and training, extra office space, and extra office equipment and supplies). I work using a timer. I’ve done it for over a decade. I track ALL of my time whether it’s billable or not and use the pause button for when I stop working to do something else. It’s been my experience to notice how much work time I actually log in an 8-hour workday. It’s never more than 5 hours within an 8-hour period, most times I only log  4 hours, sometimes less. That’s because of distractions, breaks and plain laziness at times. So it’s fair to say that you’ve just really paid your employee $30 – $40 per hour in any given day. In a day where your employee really only got 2 hours of work done, you’ve just paid them $60 per hour (again, not including the hidden expenses mentioned above), and those days happen more frequently than you think.

In the Forbes article, a survey by Salary.com in 2012 is referenced. According to the survey, one of the biggest time wasters is surfing the internet. “The survey revealed 64 percent of employees visit non-work related websites every day at work.”

“Respondents said the No. 1 reason for slacking off at work was that they don’t feel challenged enough in their job. Other reasons include , (2) they work too many hours (3) the company doesn’t give sufficient incentive to work harder (4) they’re unsatisfied with their career, and (5) they’re just bored. These reasons in part also explain why 46 percent of workers look for a new job while at their current place of employment…”

How many of your employees are not happy?

That’s why now that it’s more possible than ever because of the technology, there’s been a huge growth in the outsourcing and freelancing world. Most people who freelance love what they do. And we all know that when you love what you do, you give it your best.

Plus, outsourcing to a professional requires no training on your part, no supervising/managing time. Do you know how much time that frees up? I’ve come across  a lot of BO’s who don’t trust their employees and are constantly checking on them, i.e. micromanaging. It’s such a waste of time and energy for all parties involved. Add to this turnover rates and costs of replacing, re-training, and so on.

Yes, you might pay a higher hourly rate when you outsource to a professional service but every hour you pay for is work done, no wasted time; it’s for the work of an expert and the pay has no hidden costs such as payroll taxes, office space (more rent), extra equipment (more space, more rent). It’s focused time and specialized skills. Years of perfected trade and expertise. A professional service doesn’t always replace an employee, or vice versa. Many of my clients still have staff, because they need them to be in the office to answer phones, greet customers, or perform tasks that can only be done in-house, face to face.

But as a BO you don’t want to give your administrative employee the accounting or the marketing of your company, or even those very important and recurring administrative tasks. Those are very important revenue-generating areas of your business. A professional service is focused on one main goal for the particular department you outsourced to them. They know how to break it into smaller daily goals to accomplish the main goal assigned.

So before you hire an in-house employee, don’t focus on the hourly rate. Calculate all the numbers and consider the value of the tasks you’re trying to delegate. Most likely, in the end, it will cost you more to hire in-house.

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2 COMMENTS

  1. I see both sides of the arguement, primarily because I am the owner of an agency that contracts services to clients (and I only bill for solid working time). I know my clients are getting a “deal” when they hire us, because we are efficient in the work we do. On the flip side, however, I have burned by contractors I have hired. For example, one contractor billed me 10 hours of work to compose 19 Tweets. (REALLY!??!??) Of course I challenged that invoice, but should I even have to? Had that contractor been in house, the work would be been complete in less than an hour without any arguments. ~Kim Sutton, Co-Founder/Managing Partner, Sutton Creative Studios http://www.suttoncreativestudios.com