No one person should do everything. You may be a successful sole proprietor, but once business expands to a certain level, you’re not going to be able to handle everything and still keep up. This is where outsourcing comes in. Outsourcing work, particularly simple tasks, can actually optimize your time so you can focus on the core business and things that drive the biggest return on investment.
Oftentimes, small businesses view outsourcing work as something only handled by the big guys. For example, a major retailer will often outsource manufacturing to China because it’s cheaper and focus on product development stateside. However, in the age of tech, outsourcing is available to all types of businesses and can actually cut down on costs, whether you’re looking for a freelancer to run your social media accounts or hoping to ease payroll and HR headaches.
What Is Outsourcing?
Outsourcing is the practice of hiring a third party outside of a company’s regular full-time, in-house staff to perform essential business processes. It’s typically used as a cost-cutting measure, and outsourced work isn’t the company’s core business. There’s a wide range of the types of jobs that can be outsourced, but a lot of the time, businesses outsource small, repetitive tasks like bookkeeping and data entry or irregular IT work.
More recently, there’s been a trend of companies outsourcing entire departments, like human resources and customer service, or even hiring an on-demand CFO to overlook finances a couple times a week.
There are three types of outsourcing. Each has different pros and cons, and there's no one answer that suits every business.
- Local outsourcing, where you hire domestic workers (i.e., people in the same country as your business)
- Offshore outsourcing, where you hire workers from a different continent
- Nearshore outsourcing, where you hire workers from a country near yours
Benefits of Outsourcing
Simply put, outsourcing allows companies to focus on their core competencies and capabilities. They’re not stretched so thin that they waste essential time that could be spent on research and development or talent management instead of doing something like paperwork, but there are four main reasons companies opt to hire outsourced workers rather than actual staff members:
- To save costs overall
- To obtain short-term help for a particular project or busy season
- To get specialized expertise from a highly skilled professional
- To keep operations open in different time zones
Outsourcing is largely championed for its cost savings. If you hire freelancers, you don’t have to shoulder the burden of costly worker overhead like payroll taxes, health insurance, workers' compensation and other benefits. You simply pay a worker hourly or on a per-project basis as a subcontractor. Beyond that, outsourcing — which largely fuels the global economy — can save companies heaps if you’re hiring workers in areas with favorable exchange rates.
Besides the cost-saving benefits, outsourcing allows companies to bring in highly specialized workers they’d never be able to afford on a full-time basis, which can be extremely useful as a company expands and may need an extra hand but not quite a full-time employee. This is the entire idea behind independent contractors, who are often highly skilled people who left the corporate world to start their own businesses. For example, a company can bring in a marketing specialist, a CFO or a workflow manager to come in on a quarterly basis. Other companies hire writers, designers, PR directors and marketing directors on a short-term or project-by-project basis.
Finally, hiring outsourcing companies in certain regions allows companies to remain open 24-7. For example, a business can outsource customer service to a region in a time zone where it’s normal work hours there but the middle of the night here.
Cons of Outsourcing
Outsourcing may seem like an excellent way to save money and hire highly skilled talent, but it’s not always the best thing for a business. For example, offshore outsourcing, which generally has the greatest savings in labor costs, can prove to be difficult if you’re trying to work with people who don’t really understand your native language and who are not in the same time zone.
Even if you work with domestic freelancers, you may not be their first priority. These types of professionals are juggling numerous clients and have to focus where the money is the best. They may not always be as reliable as employees, and you legally cannot tell them when and how they are supposed to work. The most professional freelancers, of course, still meet their deadlines but may opt for limited phone calls and collaboration.
Types of Projects to Outsource
As a small business, you may not be able to outsource all of your needs. You’ll probably always need a small staff to fulfill the main objectives of your business, but it’s also easy to outsource a number of different tasks, specifically office tasks or those that require highly trained staff that you may not be able to afford. You may wish to outsource:
- Accounting: According to the U.S. Small Business Administration, this is one of the most popular jobs that small businesses outsource. Accounting is a huge undertaking for a business owner who is not a financial expert, but a professional accountant can manage multiple businesses’ finances at one time, which dramatically cuts down on labor costs.
- Marketing: For many small-business owners, it’s just not financially viable to hire an entire marketing team, but a marketing firm can work on campaigns on a project-by-project basis that’s much more inexpensive. A lot of the marketing work that’s outsourced is digital marketing, like SEO strategy, Google Ad campaigns, content marketing campaigns and social media marketing. Many companies that don’t need a full-time social media presence opt to hire a freelancer who can maintain social channels or hire freelance writers to create SEO content.
- Sales: Many companies opt to hire call centers to make sales calls. This is a time-consuming process, and sales professionals know how to land deals.
- IT management: In 2019, IT outsourcing became an $86-billion-dollar industry. Most companies will need tech support or training on new technology at some point, so this is a valuable resource.
- Administrative tasks: The increasing popularity of virtual assistants has proven that outsourcing administrative tasks is a slam dunk. Often, small businesses outsource tasks like bookkeeping, inbox management and data entry, though some VAs also do social media. Some VAs are as inexpensive as $10 per hour, while those with specialty skills charge up to $75 per hour.
- Customer service: This is another popular area where small businesses outsource, whether it’s through a call center or chat service. Some of the largest companies, like American Express, outsource some of their customer service duties to companies in India and the Philippines, two places that have become a hub for this type of work. In order to do this successfully, you need a defined list of processes that you can communicate to your service providers.
- Manufacturing: Companies often outsource their manufacturing offshore to places like China where things are cheaper to produce. Overall, you save money here because of economies of scale. Manufacturing plants and factories can buy bulk raw materials that are cheaper and drive down costs.
- Shipping and logistics: There are companies whose sole purpose is order fulfillment. This is popular among e-commerce sellers who would rather focus on marketing rather than spending hours shipping their goods (which is in itself a full-time job).
- Research and development: You may not have the know-how to research and develop all the things your company needs, so you may wish to hire a third party with the know-how. This is common in a range of industries including software development, food and makeup. For example, indie makeup brand Jeffree Star Cosmetics uses a third-party laboratory to develop and manufacture its unique lines of lipsticks and facial products.
- Human resources: Some companies are required by law to have a human resources department, but this is easily outsourced to save money. This is the most common area where work is outsourced, whether it is payroll, training, benefits administration or headhunting.
- Design: Most small businesses don’t need an in-house design team, but they will need to have someone handle web design and the creation of things like pamphlets, white papers, PowerPoints and advertisements. This field has a number of workers freelancing, so many businesses hire a single person on an as-needed basis.
Where to Find Outsourced Workers
Those who are new to outsourcing may be at a loss when it comes to hiring third-party workers and companies. In the digital age, this is easier than ever. There are a number of online marketplaces that aim to connect contractors with business owners, including:
- Rev: For transcription services
- Upwork: For everything from web design and software development to blogging and copywriting
- Fiverr: Boasts 120 different services, like writing, translation, graphic design, digital marketing, transcription, video editing, audio editing and more
- Toptal: To hire tech talent, though it has other talent like finance experts and designers
- Hired: For software developers and engineers
- Zirtual: To hire virtual assistants
- Flexjobs: For virtual jobs of all kinds
Of course, a quick web search pulls up way more marketplaces. You can also look for outsourced workers through traditional methods like temp agencies, headhunting firms, job boards like Indeed or ProBlogger, community boards like Craigslist or by combing through LinkedIn profiles.
If you’re looking to hire an outsourcing firm, it may take a little more effort. You’ll have to do your due diligence and ask like-minded professionals. Finding a manufacturing plant or the right call center requires some industry knowledge.
Ethics of Foreign Outsourcing
Outsourcing does significantly contribute to the global economy. The U.S. outsources numerous manufacturing jobs, which is why President Trump’s various attempts to reach a trade with China are a huge deal, but this practice has also come under close scrutiny.
According to naysayers, foreign outsourcing steals jobs from domestic workers and possibly exploits foreign talent from impoverished communities. For example, Beyonce’s clothing brand Ivy Park came under fire in 2016 over the allegations that it had outsourced its manufacturing to a Sri Lankan factory where workers made just $380 per month. The brand wasn’t technically breaking any labor rules, as $380 per month was about double Sri Lankan minimum wage, but is it ethical?
Not all exploitation of cheap labor happens on such a large scale. Websites like Upwork and Fiverr have been notoriously scrutinized because companies often pay ESL workers in developing nations to write English-language copy for fractions of a penny per word or to do virtual tasks for well under minimum wage. Is it ethical if you're on a U.S.-based job marketplace? Many argue that this takes work away from American workers in notoriously competitive creative industries, but do those workers have a shot if the company can’t afford them?
Ethics of Domestic Outsourcing
In recent years, the government has been increasingly scrutinizing small businesses that hire domestic workers as independent contractors. The U.S. has a notorious problem of misclassified employees essentially serving as “permalance” contractors, particularly in industries like publishing, the arts and trucking.
These workers function like employees but have no job protection or benefits, and California recently passed a law called AB5 which was meant to limit this type of misclassification but may be repealed because of its sprawling ramifications.