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.
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.
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.
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.