Practical Ecommerce

Outsourcing v. Hiring In-house: Pros and Cons

Looking back at my 10-years of managing a growing ecommerce business, I realize that online retailing is not simple. It requires many specialized skills and resources to succeed.

I’ve listed some of these, below.

  • Website design and development. A moving target, with new releases, design trends, new products and categories, and seasonal promotions.
  • Search engine marketing. Search engine optimization and pay-per-click campaign management.
  • Content marketing. Developing content for products, blogs. and your website.
  • Graphic design. Banner ads, promotional banners, newsletters, flyers.
  • Social media marketing. Developing relationships, conversations, and content that engage with your customers and prospects.
  • Customer service. Managing your customer relationships, order issues, phone orders, dealing with returns.
  • Human resources. Compliance expertise, recruiting skills.
  • Information technology. Managing your networks, computers, and telecommunications devices.
  • Accounting. Keeping track of orders, vendors, merchant accounts, PayPal accounts. Plus, there’s cash flow, budgeting, and tax reporting.
  • Operations. Inventory, stocking, and fulfillment.
  • Supply chain. Selecting products and vendors, managing inventory, lead times.

Even if you are a one or two-person company and doing everything today, at some point there will likely not be enough hours in the day to keep up. Or you will reach a point where you may not have the skills or expertise to do the job as effectively as an expert.

You will face a complicated decision at that point. Do you hire someone and run the operation in-house? Or do you outsource it to another company? I learned there is no simple answer here. Let me explain.

What is Outsourcing?

If you hire an outside consultant, service provider, or agency to manage a portion of your business, that is outsourcing. Here are some reasons to outsource.

  • Specialized skills. The task is highly specialized and requires expert skills or systems, such as graphic design, website development, payroll, PPC campaigns, human resource compliance.
  • Specialized equipment. The task requires a large facility, specialized equipment, or operational efficiencies. Fulfillment operations are frequently outsourced because of the need to stock large amounts inventory and manage it efficiently.
  • Seasonal needs. The task is seasonal or may need to scale up or down quickly. Customer service is frequently outsourced because those providers are better equipped to handle high volumes of calls on demand.
  • Limited needs. The cost of hiring in-house is prohibitive for the amount of work. This is usually because the task is not fulltime and you simply can’t afford to hire a highly skilled person for a part time position. I found this to be true with graphic design.
  • Temporary needs. The operation or task is temporary or short term. You may need the task done for the short term, such as seasonal fulfillment, tax preparation, a website redesign, upgrading your infrastructure.

Sites such as Guru.com help entrepreneurs locate freelance, outsourced talent.

Sites such as Guru.com help entrepreneurs locate freelance, outsourced talent.

Benefits of Outsourcing

The biggest benefit of short term outsourcing is that you are able to bring in an expert for a defined period of time to perform a task without committing to them long term. Even if the hourly or project rate is higher than hiring an employee, you may save thousands of dollars by not committing to an annual salary and benefits.

For longer-term needs — such as fulfillment, marketing activities, or customer service — the benefit is that you gain operational efficiencies and skills that you would have a difficult time replicating in-house.

Disadvantages of Outsourcing

The disadvantages to this are that you’ll need to find an affordable and high quality service provider. That can be very time consuming. I searched several times for marketing agencies, for example. I found that it was very difficult to find agencies that fit my needs. Most were geared for larger ecommerce companies with a much larger ad budgets than me. The cost of working with those agencies would have been too high. As a result, I would hire them on a short-term basis to create new campaigns, and I could also learn from them.

Another challenge is that good service providers tend to be very busy. I used a talented graphic designer, for example, that I enjoyed. As his clientele grew, it was more difficult to get his time when I needed it. Eventually I was forced to find a new service provider with more flexibility.

Finally, service providers will generally cost more per hour than someone you hire in-house and their availability will not be in your control.

Benefits of Hiring or Insourcing

The biggest benefit of hiring or insourcing — i.e., building your own team for an operational function — is that you control the provider’s time, activity, and quality. It is a stretch to say that this is always less expensive, because if you cannot hire the skill levels or expertise required, it may end up costing more.

Most companies try to maintain, in-house, the core operations that they believe will differentiate their business. If you feel that you will be better than your competitors because of your website design, you may want to bring those design skills in-house. Likewise, if world-class customer support is your key differentiator, you should likely build that function from within.

Hybrids

Most companies end up with a hybrid model. You’ll likely have marketing experts in-house and retain agencies when necessary. With customer support, you may build a core group internally, and outsource overnight and weekend support. With website design, you can hire outsiders for the latest design, but employ developers in-house to implement recurring CSS and HTML needs.

Conclusion

It’s useful to consider whether a function is better done in-house or by an outside service provider. At my former ecommerce business, we ended up doing most things in-house and hiring outside resources for short-term projects. But, that may not be the right answer for your business. It comes down to skills, and time.

Dale Traxler
Dale Traxler
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Comments ( 7 )

  1. Stan Miroshnik August 22, 2012 Reply

    One more major area of outsourcing is office digital task work. From Word documents, to spreadsheets, to graphics, pushing the every-day low value tasks to the crowd and focusing your day on what really matter can provide real leverage to the business. http://www.ziptask.com does this well and gully supports the philosophy that unless you are sure of 100% utilization and there is a strong element of on-site value add, hiring in-house may not make sense.

  2. Steve Bulger August 23, 2012 Reply

    Nice article, Dale. You nailed it when you said that at some point there won’t be enough hours in the day to keep up. I think that for business owners considering whether or not to outsource, opportunity cost always needs to be considered, meaning what are they losing by not outsourcing? A lot of our clients choose to outsource not just because of the scalability and cost savings, but they also factor in another opportunity cost associated with in-house order fulfillment, which in many cases is the loss of time that could instead be devoted to marketing, product sourcing, and customer service.

  3. Cristina Sierra August 28, 2012 Reply

    I am launching a business and know first hand the challenges of owning the breadth of functions you list, especially those where I do not have experience – such as accounting and supply chain. I foresee bringing on a partner in one or more areas or potentially outsourcing if I have to. For the time being, I personally feel it is invaluable to develop at least a basic understanding of 1) what is involved in accounting and supply chain 2) the challenges that can arise and 3) the time commitment in managing these areas. No one should be completely in the dark about a key function in their business. To leave it completely to someone else with no ability to understand what the work entails is a recipe for disaster.

  4. Melissa Chelist August 28, 2012 Reply

    Thank you for the insightful article. I have been struggling with deciding what jobs to outsource, hire an employee, or do myself. I cannot be ‘an expert’ on everything involved in my business, nor do I have the time do do everything myself. I just have to build a level of trust with my ‘people’.

  5. quartsoft August 28, 2012 Reply

    As outsourcing partner for many ecommerce I would say that outsourcing companies mostly do the technical things. So you still need to handle daily operations yourself. What you can’t outsource is support and marketing, there 2 things are key in business. If your store has some tech problems – this is something you might be able to solve and fix. But bad experience of your customers in terms of communication – thats might bring more problems.

    So if you think about SMM as a channel – this is something you need to do yourself. Our team actually working with clients and we do design and development and we are certified magento experts – so it might be a good idea not to trust marketplace like Guru but see the partners of ecommerce providers like Magentocommerce, Volusion etc and see what company actually specialized in ecommerce and not just do any type of development.

  6. Tanya Vysochanska August 29, 2012 Reply

    Thanks, Dale! Really helpful list for small and medium business.
    I think that ability for work with a freelancer or remote team effectively depends also on tools used for this.
    Please advice best tools for co-operation with remote workers.
    In my company we use Jira for project management, Yaware for time & productivity tracking, Google Docs for any type of documents, Google Talk for daily communication and Skype for conferences.

    With best regards,Tanya

  7. Pete Taylor December 17, 2012 Reply

    Great article Dale, it is very informative and useful. I personally outsource tasks on independent contractors rather than outsourcing it to a company, which reduce the cost. I look for people to hire on Staff.com, which allows me to conduct an interview and have a 10 hours trial to screen the person I’m going to hire. It helps me see the potential of the person to do the tasks. I believe that it is not hard to manage remote teams as long as you choose the right one for the job. There are also lots of online tools that could help you manage remote teams like Skype, Basecamp, Time Doctor, Dropbox and etc. It just depends on what you needed most for you to manage them effectively.

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