Is Outsourcing Cost Effective
Running a business can be costly. And is there a more efficient way to cut costs than outsourcing some of the work to people in other, less expensive parts of the world? Probably not. So, a lot of people ask, “is outsourcing cost effective?”.
Many small businesses use outsourcing to help them compete in the marketplace, while remaining lean and agile. Larger corporations may also choose to outsource in order to save money and gain focused expertise, particularly if those experts are not available to work in-house.
Whatever the size of your company, you probably understand the importance of saving money in order to maximize profits. How can you use outsourcing to increase the effectiveness and profitability of your business?
Is Outsourcing Cost-Effective?
In addition to lowering costs, outsourcing also frees up resources. This is why both large and small businesses view it as a cost-effective strategy. Access to qualified professionals worldwide is made possible via outsourcing. Businesses need no longer be concerned about finding top personnel.
Additionally, outsourcing is regarded as being cost-effective because it lowers overhead expenses like training programs, office supplies, and other similar expenses. Businesses can lower their operating expenses and concentrate more on their core competencies by hiring an outsourced crew.
Additionally, outsourcing offers businesses the possibility to obtain top-notch services at affordable operational expenses.
Furthermore, outsourcing increases company productivity by streamlining operations. You can also decrease long-term costs as a result. It is understandable why the majority of companies worldwide are choosing trustworthy outsourcing partners.
How does Outsourcing Contribute to Cost Reduction?
Organizations may be able to complete tasks more effectively and at a very low cost by using outsourcing. Wages in developed Western countries differ markedly from those in developing countries. Work performed in developing countries such as India can be performed at a lower cost than work performed in the United States, with the cost difference fluctuating by roughly 60%.
Outsourcing suppliers frequently focus their business in developing nations. For instance, wages are lower, as is the cost of living, in the Philippines. According to industry figures, outsourcing to the Philippines may cut labor expenses by around 70% and even closer to 90% while still paying the local workforce a living wage.
Companies can save a lot of money by outsourcing because vendors charge lower rates for their workers than internal staff do. In 2018, 62% of businesses claimed savings of 10% to 25% through outsourcing, while the remaining 38% claimed gains of up to 40%. By comparing the salaries received through outsourcing to those received internally in several key areas, your company can have a better understanding of cost reductions.
The wage disparity stands up pretty noticeably in the call center industry. As a general rule, internal wages are often 2–2.5 times more than those charged by outsourcing providers.
Therefore, it is possible that an outsourcing provider might provide resources to accomplish the same task at $15 per hour if your company pays in-house employees $30–$35 per hour.
When considering bookkeeping and accounting services, another task that is frequently outsourced, these cost savings can also be attained. Average annual costs for in-house bookkeepers are $74K, whereas a 3-person outsourced accounting staff bills $48K.
When your business hires external accountants on a monthly basis, these cost savings are also noticeable. This has the extra advantage of giving you the flexibility and control of short-term contracts, which can support the cost savings even further.
Another example of a task with a lot of potential for cost savings is software development. A good example is the Philippines, where the average yearly salary for this line of employment is $7,174 US dollars. In contrast, the average yearly income of their American equivalents is $69,589; that of their British and Australian counterparts is respectively $41,551 and $50,272 USD. For performing the identical profession in the United States, a software developer in the Philippines can earn 80% less.
Why Does Outsourcing Reduce Costs?
Less Personnel to Pay
Companies must pay their employees even if they don’t have much work to do right now. Payroll taxes and employment benefits such as medical insurance, travel allowances, and pension plans must also be paid for.
Hiring employees for inbound and outbound teams, on the other hand, can be a risky investment. They have the right to leave the company at any time, even if you have invested in their acquisition and training. If you lose an employee, you will have to spend even more money to replace them.
However, with outsourcing, you will only be responsible for the cost of the service package you select, which includes the agents’ salaries and training. You don’t have to be concerned about taxes or employee benefits.
You Need Less Workspace
Hiring more employees frequently necessitates a larger workspace to accommodate everyone. This could entail renting another office space, expanding your current one, or constructing a commercial space from the ground up, all of which require time and money.
You can avoid this issue by hiring a third-party support team who already have their own workspace.
Lower Equipment and Utility Costs
To perform its duties, a customer service or outbound marketing team needs a number of resources, such as:
- laptops or desktops
- microphones and headphones
- Protocol for Voice over Internet (VOIP)
- program for automated phoning
- software for call recording
- Software for automatic call distribution
If you intend to have an in-house team, this equipment must be provided. You may also need to upgrade your company’s IT infrastructure to accommodate them, such as purchasing more servers and constructing a larger storage facility.
More equipment also means your company will use more energy, increasing your costs.
Fortunately, you can avoid making such an expensive investment by having it outsourced instead. The equipment for their support teams will be provided by the outsourcing company.
How Much Money Does Outsourcing Save Businesses?
There is no set amount that you can save. According to the International Organization for Standardization (ISO), outsourcing can help businesses save 15% on average.
However, the actual savings will vary depending on how many business operations you intend to outsource and other changes you intend to make in-house. According to the Harvard Business Review, outsourcing non-core business processes could result in cost savings of 20% to 30%.
- Payments and billing
- Lead generation in recruitment
Noon Dalton is ready to assist you if you’re ready to find out just how cost-effective outsourcing can be. When you work with Noon Dalton, our team becomes your team and we bring decades of experience to assist provide your company the expertise it needs. Reach out right away if you’re tired of asking “is outsourcing cost effective?” and want to find out for yourself.