Pros and Cons of Outsourcing for Small Businesses: When and How to Do It
Ezra Cabrera | January 17, 2024
For many small businesses trying to keep costs as low as possible, outsourcing can be a lifeline. And small business owners have never had access to such a huge, truly global pool of talent. Today’s founders don’t have to pack up and move across the globe to take advantage of more affordable labor. Now they just have to contact an outsourcing agency and hop on Zoom.
Of course, not all work is suitable for outsourcing. Many businesses profitably outsource services like bookkeeping, payroll, IT, and managing document automation software. But you’ll want to keep really core parts of the business in-house, as well as any peripheral services that support those core functions.
So what are some of the pros and cons of outsourcing? Let’s take a look at both sides.
Pros of Outsourcing
Outsourcing can transform your business’s growth profile by freeing up valuable time and resources. Let’s look at some of the obvious (and less obvious) advantages of outsourcing.
Big Savings
Let’s cover the most obvious benefit of outsourcing first: It can save your small business a lot of money. If you’re struggling with revenue, or have recently sought debt relief, outsourcing non-core functions of your business can give you some much-needed financial breathing room.
Keeping work in-house requires you to hire and train employees to handle it, which is expensive and time-consuming. Those permanent employees have ongoing costs, like payroll taxes, insurance, and office space rent — whereas when you outsource, you simply pay for the work being done. Often, outsourcing work can get it done at a fraction of what it would cost to do it in-house.
Finding the right employees and getting them trained up can also take months. And there’s always a learning curve, which tends to be even longer for more complex work. In the end, ramping up to produce high-quality services in-house is probably a years-long process — and there’s no guarantee those highly trained employees won’t become disgruntled and start looking for new positions.
Benefits of Outside Expertise
The act of outsourcing services for your small business also gives you the opportunity to find the best talent for what you need done. As good as your in-house graphic designer might be, they’re probably not the best graphic designer in the world for what you need — but you might be able to hire the ideal graphic designer for that task if you look outside the company.
It’s not always a matter of quality. Outsourcing often gives you access to specialized talent whose services you simply couldn’t reproduce in-house. Just keep in mind that if you want the best, you’ll probably have to pay a premium.
The Luxury of Focus
Outsourcing non-essential services allows you to focus on your essential core competencies. So instead of putting resources into things like in-house bookkeeping or website design, you outsource them, and devote all your in-house efforts toward the things that will take your business to the next level. Outsourcing non-essential services can give you the luxury of laser-focusing on the reasons you started your small business in the first place.
Cons of Outsourcing
For all the potential advantages of outsourcing, there are a few possible drawbacks. Let’s look at the most common.
A Shortage of Qualified Candidates
Finding the best person for your job in the almost unlimited freelance talent pool isn’t as easy as Googling “what is the best laptop.” It’s going to take time and legwork — and once you find them, there will probably be a lot of other people vying for their services. That can make it challenging to get your work handled by the ideal candidates, especially if you’re working on a tight deadline.
There’s another potential pitfall here, too. Although references and reviews can give you an idea of how qualified and dependable a candidate is, there’s always an element of risk in working with someone new. It’s not unheard of for a well-reviewed vendor to miss deadlines, turn in substandard work, or even ghost you.
You’re Relinquishing Control
One thing that the work-from-home era has shown is that there’s tremendous value in having your employees in close physical proximity, where they can easily collaborate and share knowledge. In this setting, it’s also much easier for managers to monitor the work being done, and make sure it’s on the right track.
When you outsource, you’re giving up this kind of close oversight. You essentially have to trust that the vendor is handling your work according to your specs and standards. If we’re talking about something like a brochure design, the consequences will be minor, and you’ll probably be able to ask for revisions. But if we’re talking about a more important service, like dealing with major sales and purchases, the consequences of poor work can be quite serious.
Most people you hire will agree to periodic check-ins, but that still leaves a lot of room for drift. It also leads us to the next potential pitfall on this list.
Responsiveness and Communication
Communication can be a unique challenge when you outsource. If you outsource work to an overseas vendor, it’s often challenging to set up a call at a time that works for both of you — one of you will probably have to hop on outside of normal business hours. If there’s also a language barrier, the difficulty increases.
If you hired the vendor through an outsourcing agency, you may not even be able to communicate directly with the person doing the work. Your questions, concerns, revisions, and suggestions will have to be relayed by a third party. This can result in long response times and potential confusion.
Quality Can Suffer
Outsourcing can result in substandard work, with little chance of a refund or revision. There’s always a risk when you work with a remote vendor, especially a new one, that the work won’t meet your standards. And if you’re under tight time constraints, you may have no choice but to use the work you get, even if it’s not right for your brand. Always closely review a vendor’s online reviews and references before contracting with them, and give yourself some breathing room in case you need to commission replacement work.
In the end, outsourcing can be a mixed bag. While outsourcing can potentially save your small business a lot of money, and allow you to concentrate on your most urgent areas of expertise, there is some risk involved. You’re giving up a certain collaborative intimacy, and will have little control over the final product until it lands in your inbox. And if you’re working with unproven vendors, the work might not meet your standards. While outsourcing can help your small business scale up in its early stages, remember to tread carefully when doing so.
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