When is it profitable for a company to outsource, and when not?

Jan 22, 2021 Read in the blog

Based on our experience, outsourcing is most beneficial for small and medium-sized businesses. Large companies, as a rule, have entire departments that deal with various tasks, have their own contractors, and they do not need outsourcing as such. At the same time, if the company is very large, then sometimes the functions of the department are transferred to outsourcing, and the staff of the company is left with one specialist who will coordinate the work of outsourcers and resolve operational issues.

Still, when deciding on outsourcing, one should proceed of your goals, not company size. The most common goals for companies are to reduce costs, focus on priority tasks, and get quality work and external expertise. Let’s take a closer look at these goals and the benefits of outsourcing to achieve each of them.

SITUATION 1. YOU WANT TO REDUCE COSTS

How does outsourcing reduce costs?

First, outsourcing is a reduction in the wage bill. Outsourced employees pay taxes themselves, and the employer saves up to 40% of the amount of tax and insurance contributions to the state. There is also no need to pay sick leave and vacations. An outsourced employee will not get sick or quit overnight. It also includes savings on workplace equipment and rent.

How to understand that outsourcing will reduce costs in your case?

To understand that it will be profitable for you to use outsourcing, you need, first of all, to analyze how much time, financial and other resources you are spending on processes, and then compare the outsourcing offers.

For example, if you are thinking about outsourcing payroll, the first thing to look at is the number of employees. If your company employs less than 50 people, then this type of outsourcing will be profitable for you economically. The fact is that in a small business, one employee is usually employed in all areas of accounting. To relieve him and give him the management of more complex areas (for example, tasks to optimize taxation), you can outsource some of the accounting functions.

An important point when calculating costs is attention to indirect costs. For example, a company wants to outsource the supplier management function. The provider of such a company, in fact, will take on the role of signing contracts with numerous suppliers, administering them and paying for their services, consolidating all costs in a single, regular bill for the supplier.

With this approach, the company saves:

– the time resources of the purchasing department. Considering that a large company, in any of the functions, may have hundreds of suppliers (and each with its own contract and specifics), the company can save a lot of working hours of its employees

– it saves on control of functions. The provider, as a rule, by consolidating and automating the processes, provides the client with a transparent picture of this function. The client does not additionally need to check and double-check the provider’s activities, since it is all reflected, for example, in the IT system that was implemented by the provider to manage this function

– saving on recruitment and training of specialists. When outsourcing a function, a provider undertakes to ensure its continuity (within the framework of work processes). This means that the provider also takes care of all the issues related to their selection and registration of all the issues related to the hiring of executing specialists.

SITUATION 2. YOU WANT FOCUS ON THE KEY BUSINESS FUNCTIONS

Again, it is not important for all companies to reduce financial costs. For some, the most important thing is to give non-priority functions to an expert, since they take up a lot of resources and attention. In this case, the main goal is to focus on core tasks and gain expertise in managing the function, as well as cost savings. First, you can buy ready-made solutions, infrastructure, specialists and not spend money on training. Secondly, outsourcing is about transparency, since the result is assessed by the result, not the process. Thirdly, it is easier to change an outsourcer than a full-time employee.

For example, you need to go through a check of the personnel documents of a company that has recently become part of the holding. Outsourcing will also help if the departments of the company, such as accounting, lawyers, marketing, cannot cope with the load caused by a sharp increase in the number of counterparties. Transferring these processes to a contractor will save time, effort and money on finding highly qualified personnel. Including you do not have to deal with registration of staff, payment of contributions, calculation of taxes, etc.

SITUATION 3. YOU NEED AN EXTERNAL EXPERTISE

For example, you provide legal support to staff in case of constant changes in requirements or form a talent pool in the face of staff turnover.

In these cases, it is easier to attract outside professionals who will be able to share their knowledge and suggest what problems you will face in your work and how they can not only be solved, but also prevented.

How to choose an outsourcing provider, in the checklist below.

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