Small businesses have many compelling reasons to outsource, including saving money, improving performance, avoiding recruiting headaches, and more. Despite the obvious benefits, many businesses are unsure how to get started with outsourcing and may be hesitant to proceed.
However, when you choose the right outsourcing partner, you can affordably streamline your business processes and operate more efficiently. Outsourcing can also provide your company with personnel who have specialized skills that would be too cost-prohibitive to maintain with an in-house employee.
We’ll explore how outsourcing works and how you can successfully outsource specific functions so you can focus on engaging customers and growing your business.
According to Clutch, over a third (37%) of small businesses outsource at least one business process, helping with accounting challenges, IT services, digital marketing, and more.
How does outsourcing work?
Outsourcing involves hiring an outside company or independent contractor to perform tasks an in-house team member would otherwise perform.
Typically, successfully outsourced tasks are low impact and repeatable while consuming significant time and resources, such as:
- Accounts payable
- Accounts receivable
- Administrative work
- Transaction support
- Data entry
However, some companies choose to outsource more critical tasks, including human resources, customer service, payroll, and IT.
If you’re considering beginning the outsourcing process, follow these five steps:
1. Decide which tasks to outsource.
Your first step is deciding which workflows to outsource and which to keep in-house. Businesses typically consider the following:
- Outsource back-office tasks. Many companies outsource back-office tasks that are crucial to operations but don’t help your business grow. While you can’t neglect accounting, human resources, payroll, and other support roles, these functions don’t bring in new clients and revenue. Routine tasks – while necessary – will distract an in-house team’s time and attention.
- Outsource tasks for specific skills. Businesses also outsource tasks that require talent or skills they don’t have in-house. Often, these outsourced tasks have firm start and end dates and may include minor upkeep. For example, business owners may choose to outsource website design and development instead of dedicating an employee or adding it to the IT team’s tasks.
Outsourcing works best when you have specific goals and structured processes and know precisely what functions you want to offload. Take time to prepare to ensure the partnership succeeds.
Outsourcing HR presents challenges, including disconnection with staff and less flexibility. Consider keeping functions like hiring, firing and employee performance management in-house.
2. Write the outsourced function’s job or project description.
Create a detailed write-up of the precise functions you want the outsourcing company or independent contractor to perform. This project description will help you:
- Set and clarify expectations. A detailed write-up will help you clarify your expectations internally, so you’ll know if the outsourcing resource is meeting your expectations during your relationship.
- Set job parameters. Be specific about what you need from your outsourced partner and when you need it. For example, if the outsourcing company is in another time zone and you need work performed during your local business hours, put this in the job description.
- Find a partner with the right skill set. Your outsourced function’s job description will narrow candidates to the most qualified applicants. Consider the qualities, talents, knowledge, and proficiencies your ideal outsourcing partner would possess, and set these expectations clearly in the job or project description. For example, you might state that your provider must understand GAAP (generally accepted accounting principles). For tasks that involve verbal or written communication, such as blog writing or customer service, you may specify that your provider must have an excellent command of the English language.
Post your job or project description on freelance sites such as Upwork, Outsourcely, or Fiverr or create a request for proposal (RFP) and send it to selected companies. When you include all your expectations and requirements in the job description, many less-qualified companies won’t apply, saving you time sorting through and assessing applications.
3. Assess your outsourcing candidates.
Once you post your job description or disseminate an RFP, you’ll start getting responses. Responses may be as simple as a Fiverr candidate sending a description of their capabilities and prices or as detailed as a custom proposal from an established company.
When assessing your responses consider the following factors:
- How closely do the company’s capabilities match the job description requirements?
- How long has the company been in business?
- How experienced is the company in doing this sort of task?
- What kind of certifications, reviews, or other social proof does the company have to back up its credibility?
- How well does the company’s response show that they understand the job or project?
- How is the company’s communication? Is it clear, understandable, and free of errors?
- How is the price compared to other outsourcing companies? Is the value they offer more or less than competitors?
After reviewing applications and proposals, choose the company you feel is the best fit.
When evaluating your outsourcing partner, look for problem-solving skills, industry experience, and solid references.
4. Manage and communicate with your outsourced resource.
Designate a point person to interact with the outsourced resource. At first, this will involve setting expectations and familiarizing the resource with the company’s people and processes.
Depending on the task, you may need to consider giving the outsourced company access to parts of your computer network. If so, set up restricted user names on your network for security reasons. Other outsourced partners may only need to send in their work via email or tie their phone system into your customer service system.
5. Track your outsourcing partner’s tasks and expenses.
To stay on top of project timelines and costs, request outsourcing companies use time-tracking software you can access. They should track their time for each specific task to give you an idea of their time and monetary efficiency.
Tracking tasks and expenses can help you realize when more communication is needed and whether outsourcing with this particular company is working out.
Consider using one of the best time and attendance software solutions to monitor and track your outsourcing partner’s efficiency.
How does outsourcing help grow your business?
Outsourcing allows companies to focus on their customers and leverage internal resources for growth. Here are a few ways outsourcing can help grow your business:
- Outsourcing cuts employment costs. Outsourcing significantly cuts employment costs, including costs for recruitment, salary, and benefits (since outsourcing companies don’t need employee benefits packages). There are no employment taxes to pay, and outsourced employees typically have their own computers, office space, and other overhead costs already taken care of.
- Outsourcing lets you designate payroll to revenue producers. Outsourcing leads directly to greater efficiency because it allows companies to hire top talent in their critical revenue-producing areas, including sales, marketing, and core operations. At the same time, companies save money on routine but necessary tasks like bookkeeping, customer service, and data entry. Because money is freed for revenue-producing employees, the company can attract top performers in areas where excellent compensation is critical; these individuals will be more likely to stay with your company for the long term.
- Outsourcing brings more value for your dollar. High-quality outsourcing partners who use offshore talent can often deliver exceptional performers at a lower cost. Outsourcing also means you don’t have to worry about hiring, training, or retention because the outsourcing partner handles those functions.
- Outsourcing offers lower rates on repetitive tasks. An outside company or freelancer can often handle tasks like data entry and invoicing at lower rates than you’d pay your in-house employees. Having fewer employees can also save you money on office space rent.
- Outsourcing helps you save on equipment and technology costs. Many companies need customer support help, but building an in-house call center would be a waste of resources. It might make sense to outsource with a call-based customer support company with the infrastructure, training, hiring protocols, and management process already in place.
The best call center services do more than answer phones. Find a partner with live chat services that can also monitor and respond to emails and social media inquiries.
6 keys to effective outsourcing
Every company outsources differently. Use these six tips to customize your strategy.
- Set clear efficiency goals. “Growth” and “increasing efficiency” are very broad goals. Be specific about your intentions: Are you trying to cut certain costs, build a particular team, or free up resources for a specific initiative? Consider how outsourcing workloads in one area can free up resources and energy to focus on another. How will that help your company better deliver value to customers? Whatever the goal, it should guide where, when, why, and how you choose to outsource.
- Plan for change. Outsourcing will fundamentally change your company’s makeup. That’s an exciting opportunity but one that requires planning. Begin preparing your staff, workflows, and company structure to facilitate your plan. You’ll need to outline processes around the tasks that will remain in-house and determine how your team’s workflow will change.
- Get buy-in from critical stakeholders. It’s essential to gain buy-in from key members of your organization, including department heads and board members. Before presenting outsourcing as a strategy, ensure you know the answers to some challenging questions: Who will spearhead the strategy? How will this affect our current team? Where will we use the cost savings? How long will the process take from start to finish?
- Choose the right outsourcing partner. Outsourced services are only as good as the partner that provides them. You want a flexible partner who is willing to integrate into your team. To know whether a provider will be a fit, read testimonials and ask for references. Quality providers will happily engage in one-on-one conversations and provide detailed proposals. If applicable, the provider should ask you to visit its facility. Don’t move forward until you’re confident you’ve found the right outsourcing partner.
- Define what outsourcing success means. Excellent outsourcing partners commit to specific performance standards, but it’s up to you to define them. Decide what metrics and benchmarks matter. Your key performance indicators (KPIs) will vary depending on the service you outsource. For example, if you’re outsourcing creative talent, you might use a predetermined quality score. With invoicing, turnaround time could be the key metric. Additionally, ask the provider to determine its own KPIs. Agree on how often the partner will update you with results. Hold your provider accountable weekly, monthly, or quarterly, depending on your needs.
- Start outsourcing slowly. Instead of outsourcing an entire department, start with a pilot project that requires less upfront investment. This approach also lets you observe the outsourcing partner’s effectiveness before committing completely. Great partners will be flexible with your terms and want to prove their worth.
Outsourcing may help your business grow
If your goal is to evolve and expand, imagine how helpful it would be to function with leanness and agility. By engaging with an outsourcing provider, you’ll work with high-caliber professionals for reduced costs. Outsourcing is a big decision and an endeavor you must approach with careful consideration and planning. However, in the end, many companies find the results are 100 percent worth it.
David Lesniak contributed to the reporting and writing of this article.