More and more business owners are opting to outsource services and/or production related activities such as payroll, customer service, packing and shipping. It is not hard to see why; outsourcing has many obvious advantages and can often enable a small business owner to do things that were previously impossible. At the same time, outsourcing does have some disadvantages that a business owner should carefully consider.
What are the Advantages?
One of the main advantages of outsourcing certain services is that it saves a considerable amount of money. A company that outsources packing and shipping, for instance, does not need to pay for its own warehouse rental space or hire workers to pack and ship orders. What is more, large order fulfillment companies can often provide much cheaper shipping prices than would be available to a small company owner that does not handle bulk shipping.
Employee costs and availability is also a determining factor in many companies’ decision to partner with an outsourcing service. By outsourcing services instead of hiring employees, a company saves money that would have been spent on salary, paid leave, health insurance, etc. Additionally, outsourcing enables a small company located in a small town to hire a competent, experienced professional in another town.
Outsourcing makes it possible for a small business owner to use the latest technology without having to pay for it. Payroll service providers, for instance, use top the line software programs to keep track of payments. Order fulfillment companies use RFID product tagging to ensure that products are not lost or stolen.
What are the Disadvantages?
The primary disadvantage of outsourcing small business company services is that it automatically compromises the company’s security to at least some degree. Companies that outsource payroll, for instance, have to provide a third party with employee names and information. Businesses that outsource customer service must realize that doing so makes the third party company privy to customer information and business practices.
Many small business owners are also concerned about the fact that it can be difficult or even impossible to supervise an outsourcing company and ensure that it provides a continually high level of service. This is primarily true for companies that opt to outsource services to a company overseas, but it also holds true for companies that outsource customer service.
Because an outsource company is not part of the small business, it will not operate in the same manner as the small business does. This may mean that it will handle customer service in a completely different manner. Large outsourcing companies may also not be able to offer services such as gift wrapping particular orders. This lack of personalization may cause some customers to become less than satisfied with the small business.
Is Outsouring Right for Your Small Business?
While there are many good reasons for outsourcing, it is not the right option for every single company. A small business owner who wants to increase production and cut costs should do careful research before deciding to work with an outsourcing company.
To start with, a company owner should compare the costs of hiring a particular outsourcing company with the cost of providing service in house. If there is not much price difference, it is usually best to opt for in-house servicing and production.
A company owner should also consider how outsourcing would affect customers. Customers may not be pleased to talk to a third party customer service center as opposed to a company employee, especially if the customer service center does not understand the small business’ products, services and/or pricing system.
A company owner who does opt to outsource production and/or services should choose an outsource company carefully. Such a company should be established, located fairly near the small business if possible and be able to fully meet a small business owner’s needs at a reasonable price. Compare service providers and look up online reviews from former customers to determine which company would be the best option.
Outsourcing can be a great move for a small business owner, one that will enable him or her to spend less, meet customers’ needs and expectations and even expand the business so as to generate more customers and revenue. However, outsourcing is not the right move for every single business and some companies that have tried it have lost customers and a considerable amount of money. A small business owner will want to carefully consider the pros and cons and do in-depth research to determine if working with a third party service provider is really the best option for his or her business and its clients.
Yes Jeff you are right. The way I look at it, if you outsource, the time you free up, that time you can use where you get the biggest bang for the buck. So if you outsource 10 hours of work at $10/hour, you spent $100. But that 10 hours saved and invested elsewhere – if that produces $200 worth of additional business, then you came out ahead.