Outsourcing as a Start-up
Below are a few reasons why outsourcing may be the best choice for new businesses.
One of the most challenging aspects of starting a company is knowing when to scale up, which is an intimidating process, especially since onboarding is one of the biggest human resources expenses for businesses. By outsourcing scaling, you can explore your options without committing long term, allowing you to hit the ground running rather than spending time training new employees that might not fit.
Building an accurate budget is the best way to survive the early months of a startup. If you’re on your own, the costs can be flexible and difficult to plan and account for. But by using a vendor and paying them a set fee, you can reliably factor that exact amount into your budget, helping you see how much of your budget is inflexible more clearly so you can manage changing costs more predictably.
No one can be great at every one of a business’s many facets – marketing, sales, accounting, IT, and more. It’s impractical to have every department fully staffed when you’re on a budget. It makes more sense to outsource tasks with companies that are experts, offering a quality of service at low cost in ways a general-purpose employee couldn’t compete with.
Outsourcing for Small and Midsize Businesses
Below is a list of concerns that might arise when trying to outsource, and solutions to plan for them.
Selecting the Right Service Provider – As the bedrock of the entire outsourcing process, the selection phase needs to be flawless and well accounted for in order to avoid surprises down the line of the contract. You should strictly identify your organization’s requirements and the output you are seeking and select a vendor closely based on these factors, ensuring everyone agrees on the contract’s type and tenure. You can select to go for a test run beforehand and monitor key performance indicators throughout your partnership, implementing the ‘Balance Score Card’ method.
Legal and Contractual Miscommunication – Many outsourcing failures result from companies overlooking legal issues and allowing both parties to retain a vague understanding of the contract, which can cause many roadblocks later on. It’s important that everyone conforms to local legislations, executives from both sides taking contract negotiation seriously and making the terms clear to each other before making any decisions.
Cultural Concerns – The fate of your deal can depend on the way cultural tangles unfold, taking into account both corporate and country-specific cultural peculiarities. You should study the impact of your project and method on different cultures before getting into business. By coming up with a multi-cultural sensitization program for both sides, you can reach an efficient cultural synchronization and avoid further issues.
The cost of hiring in-house
According to the CPH, the American National Standard metric, the total of hiring in-house staff should encompass all of the following internal and external costs:
- Talent acquisition system expenses
- Advertising and marketing costs
- Job fair and recruitment event expenses
- Travel costs
- Relocations fees
- Office expenses for the recruiting department
- The recruiting team’s salary and benefits. Here you should include the employees that are in charge of posting, screening, interviewing, onboarding, and training.
According to the Society for Human Resource Management (SHRM), the average cost-per-hire (CPH) is $4,129, and the average time needed to fill a specific position is 42 days.
Based on the figures provided by the Bureau of Labor Statistics (BLS), the benefit costs can account for up to 30.0 percent of the total employee compensation costs. According to BLS statistics, a software developer with a median hourly rate of $51.73 will, in fact, cost their employer $77.09 per hour. Thus, the median annual wage of $107,590 grows up to $160,342.
An impressive difference, don’t you think?
Social security contributions are compulsory payments that represent a big part of the financial and administrative side of entrepreneurship. Payroll taxes, as these contributions are referred to in the U.S, are typically paid by the employer and employee. Both parties pay 6.2 percent of wages up to the taxable maximum of $142,800.