Can Outsourcing Work for Small Businesses?

Many entrepreneurs are familiar with the concept of outsourcing, which is the practice of employing other organisations to undertake tasks that would ordinarily be done within a company. Payroll processing, accounting, distribution, and a variety of other vital services are routinely outsourced by small businesses, often because they have no other option. To save expenses, many multinational corporations look to outsourcing. As a result, entire industries have sprung up to cater to businesses’ outsourcing needs.

29% of businesses with fewer than 50 employees outsource, compared to 66% with 50 or more employees.  When compared to global organisations, smaller businesses are less likely to spend money on outsourcing because they believe it is better to keep the money in-house and do things themselves. Smaller businesses are more likely to use freelance workers when they do outsource.

However, few organisations really comprehend the advantages of outsourcing. True, outsourcing can save money, but it isn’t the sole or even the most compelling reason to do so. As many businesses realised during the early 1990s outsourcing ‘mania’, outsourcing too much might be a larger disaster than not outsourcing at all. Many companies were compelled to make large layoffs as a result of the flat economy, and as a result, functions that should have been kept in-house were outsourced.

Outsourcing, on the other hand, can have a variety of long-term advantages:

1. Control capital expenditures
   Although cost-cutting isn’t the primary motivation to outsource, it is a significant issue. Outsourcing allows you to turn fixed costs into variable costs, freeing up funds for other investments and avoiding huge outlays in the early phases of your organisation. Outsourcing can also make your company more appealing to investors by allowing you to put more money into revenue-generating operations.

2. Improve efficiency
   Companies that handle everything themselves incur significantly greater research, development, marketing, and distribution costs, which must all be passed on to customers. The cost structure and economies of scale of an outside source might provide your company a significant competitive edge.

3. Reduce labor costs
   Hiring and training temporary employees for short-term or side projects can be costly, and temporary employees don’t always meet your expectations. Outsourcing allows you to concentrate your human resources where they are most needed.

4. Launch new projects quickly
   A reputable outsourcing company will have the resources to begin working on a project straight away. In-house management of the same project could take weeks or months to find the proper individuals (), train them, and offer the necessary support. The launch process might be significantly more challenging if a project requires significant capital inputs (such as the construction of a network of distribution hubs).

5. Focus on your core business
   Every company has a certain amount of resources, and every manager has a finite amount of time and attention. Outsourcing can assist your company in shifting its attention away from non-core tasks and towards work that benefits customers, as well as assisting management in better defining their priorities.

This rationale can be helpful in a number of different business areas. Here are some of the top fields where you might consider to outsource.

• Information Technology (IT)
  IT is one of the most important outsourcing industries in the world. This year, the global market for outsourced IT services surpassed $85.6 billion. To handle any IT concerns or efforts, you can outsource to a managed service provider or collaborate with a firm that provides on-demand assistance.

• Marketing
  When it’s time to expand your company, an outside marketing firm can assist you. They can handle ad design, content creation, and social media posting so you may focus on your company’s internal operations. Furthermore, these organisations are frequently staffed with professionals who can assist you in developing innovative ideas and practical tactics that you might not have had access to otherwise.

• Sales
  Similarly, your organisation may lack the resources or skills to make sales calls or set up funnels and processes designed to close agreements. You can delegate those activities to skilled employees who will bring in more business if you outsource to sales firms or pros.

• Accounting
  Despite the fact that payroll is the most widely outsourced service, 60% of small firms still conduct this function in-house. It has been demonstrated that delegating this duty to experts or using helpful payroll software reduces expenses while increasing compliance. Companies who outsource payroll save 18% more than those that do it in-house.

• Logistics
  Outsourcing logistics frees up time for retailers to focus on selling and merchandising. Having third-party suppliers manage fulfilment, warehousing, and delivery activities not only reduces overall costs, but also improves customer service. These service providers are experts in their field. As a result, they can respond rapidly and scale to meet demand more easily than you can.

• Customer Support
  Having trained or dedicated customer care staff is not always a practical choice for smaller firms. This frequently means that office workers or salespeople must fulfil this duty, dividing their time between acquiring new customers and keeping existing ones satisfied. Outsourcing to a contact centre might provide you with the extra labour you need to manage consumer calls. However, because fees and services vary greatly, company owners should carefully assess their options. Cloud-based services or shared-agent solutions may be less expensive.

• Administrative Tasks
  Virtual assistants are becoming increasingly popular, particularly among solopreneurs and entrepreneurs who work from home. There are virtual assistants (VAs) who can handle anything from email management and scheduling to social media posting. This is frequently one of the least expensive ways to outsource, since some VAs charge as low as $10 per hour. However, professional VAs or those with a specific speciality will most likely cost between $30 and $75 per hour.

Considerations

While affordability is one of the reasons organisations outsource at least some of their operations, a recent survey reveals it is the least of many firms’ worries when deciding who to outsource to.

According to the SavvySME B2B Jobs Report 2021, when it comes to outsourcing, the majority of firms choose quality, industry expertise, and cultural fit over the lowest quote from service providers. In fact, when it came to outsourcing, just 7.58% of organisations prioritised the lowest quotes. Quality, on the other hand, is rated as the most important consideration by 34.87% of organisations.

This sentiment is supported by the recent PWC Global Outsourcing Report, which stated that ‘outsourcing is increasing quickly and delivering results. More people are outsourcing than ever before, and there is no sign of this trend slowing. Our findings demonstrate that outsourcing has progressed beyond cost reduction to become a means for organisations to acquire better access to talent and competencies, gain greater flexibility, reinvent their business model, and drive innovation’.

Final Thoughts

Outsourcing can be a wise option for expanding your organization’s capabilities while remaining focused on your core skills. One of the best instances of cost reductions is using freelance or contract workers, which can save you between 30% and 50% more than hiring full-time employees. Don’t forget about the other benefits, such as decreased risk, better compliance, and greater resource control. Most importantly, outsourcing helps you to refocus your objectives as a business owner or manager and avoid wasting time, money, and talent (including your own) on activities that could be handled better by a professional outside your firm.