Is Outsourcing a Good Business Strategy?
At some point, every small business encounters a fork in the road — the choice between trying to do everything in-house and outsourcing various functions to third parties. It can be difficult, or even daunting, to consider giving up control in this way. However, there are definite pros and cons worth considering when it comes to the business strategy of outsourcing.
Bottom line: Outsourcing can be a good business strategy when considered carefully and implemented effectively. Keep reading to learn more about the ins and outs of outsourcing for small businesses.
Outsourcing for Small Businesses: Pros and Cons
Small businesses may choose to outsource all kinds of tasks and services. The U.S. Small Business Administration outlines a few popular candidates for outsourcing:
- Accounting
- Marketing
- IT services
- Assistants
- Customer service
- Shipping
- HR
One example would be a small eCommerce company choosing to employ drop-shipping rather than storing and mailing out orders firsthand. Under this model, a wholesaler or manufacturer would handle each shipping transaction for a set fee, allowing the eCommerce company to focus more on its website functionality and sales. Ultimately, they are able to avoid the risk and hassle of stocking an inventory so as to focus their resources on other tasks — but are sacrificing having complete control over the last leg of the customer journey.
This example highlights the predominant pros and cons of outsourcing as a business strategy, namely:
- Pros: The ability to get more done; tends to be more cost-effective than having to hire multiple full-time roles; frees up leaders to focus more on their passions and areas of expertise rather than being spread too thin.
- Cons: outsourced services have a price tag; your company gives up some control over the outcomes; effective outsourcing requires more effective and consistent communication with contractors.
As you can see, there are upsides and downsides to consider before choosing whether your business could benefit from outsourcing one or more functions of your organization.
Tips for Outsourcing Effectively as an SMB
There are two main factors to consider when evaluating outsourcing as a strategy: price and quality. The goal here is to make the most cost-savvy decisions possible for your business while also ensuring you’re getting quality work for the price.
Let’s return briefly to the eCommerce example from earlier. Say the company pairs with an international supplier who will mail out their products to customers for just a few dollars per envelope. Although this sounds great at first, it depends on if the company can deliver the right products within the right timeframe to the right customers — and ensure they make it to buyers without damage or confusion. If the eCommerce company is promising 4-6 day delivery and the supplier is getting the packages to customers 10-14 days later, the seller’s brand reputation will take a hit.
This is where doing your research ahead of time comes in handy, both in terms of cost and quality. One expert recommends for Forbes always conducting background research into any contractor with whom you are considering working — asking for a proven track record of strong work for other clients. If possible, look up reviews and ratings from past clients, or even reach out to them firsthand to ask about their experience. Ultimately, quality is something you should bring up explicitly before signing a contract with any firm.
In terms of your budget, you’ll want to estimate the costs of contracting versus handling a given task in-house to establish potential savings. After a few billing cycles, crunch the actual numbers to ensure you’re on track.
Outsourcing can be a very good business strategy in terms of potential cost savings and workflow optimization. However, you have to be prepared to do your research and ask questions before signing up.
