One of the least utilized tools available for growing a business is outsourcing. Outsourcing is when you take a function, activity, or need of your business and hire an outside company to do the work instead of doing it in-house.
This includes: contracting with a fulfillment company to stock and ship your customer orders; hiring an online marketing company to do your pay-per-click ad campaigns; turning over your payroll to a professional employment agency; and so on.
- Hiring large numbers of new staff;
- Investing in new capital equipment or leasing larger space;
- Investing in development costs for non-core elements of your business
- Increasing your fixed overhead.
4 Ways Outsourcing Provides Great Leverage
1. You get instant scale (growth) in that area of your business. For example, a fulfillment company already has the capacity to handle 100 times the volume of orders you have or the payroll service can immediately handle any increased staff you hire.
2. You benefit from the development costs and trial-and-error the outsource provider had to experience to build that business. You skip all that pain and tap directly into a proven business system that specialized in the function. Instant payoff!
3. Your outsource service provides the expertise and experience your business lacks. For instance, a shipping and distribution company may have decades of experience in what may be totally new for you.
4. When the outsource provider grows and matures, you immediately access that company’s upgrades in know-how, systems, and staff.
3 Ways to Determine When It’s Smart to Outsource
1. When outsourcing lowers your real cost. Factor in direct and indirect costs of keeping work in-house compared to direct and indirect costs of outsourcing the work. Indirect costs of keeping it in-house include loss of staff time to perform the work; increased overhead to both perform and manage the work; and perhaps more management time to handle the work. Indirect costs of outsourcing include cost to find and implement an outsourced solution; the cost to replace a failed outsourced relationship; and the cost to integrate the outsourced service with your own company’s systems.
2. When outsourcing increases the value you provide for your customers and clients. Perhaps outsourcing gives you faster and more reliable delivery service for the same or less money.
3. When the outsourced function is not core to your business. If the outsourced function is the main way you create value in your business, then outsourcing puts you at risk.
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