Hiring vs. Outsourcing – Which is Best for Your Small Business
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As a small business owner, you wear many hats, but there's only so much time in a day. When tasks start piling up, you're faced with a critical decision: should you hire full-time employees to handle the workload or outsource tasks to freelancers and contractors?
It's a question many business owners wrestle with, and the right choice depends on a variety of factors, including budget, the nature of the tasks, and long-term business goals. In this article, we’ll dive into the cost-benefit analysis of hiring versus outsourcing so you can determine the best path forward for your small business.
In this article
What is outsourcing?
Outsourcing involves delegating specific tasks or business functions to external professionals, typically freelancers or contractors. Rather than bringing someone onto your team as an employee, you contract a skilled individual or company to complete a job or project for a predetermined fee or time frame. Outsourcing has become an increasingly popular choice for small businesses, particularly when specific expertise or short-term solutions are required. It allows businesses to tap into a global talent pool without the overhead of a full-time employee.
Differences between hiring and outsourcing
Hiring employees
When you hire a full-time or part-time employee, they become an integral part of your team. They typically work on-site or remotely during regular hours, contributing to the business daily. Hiring someone involves a more formal process, including interviews, background checks, and onboarding.
However, hiring employees comes with additional costs beyond their salary, such as taxes, benefits, insurance, and compliance with labor laws. Employees are entitled to paid leave, healthcare, retirement benefits, and other incentives, making them a long-term investment in the business's growth. These costs, while substantial, can pay off in terms of commitment and collaboration within your team.
Outsourcing tasks
Outsourcing, on the other hand, involves hiring independent professionals to handle specific jobs or projects. This arrangement is often temporary or project-based, with no expectation of full-time work. You might outsource tasks like website development, marketing campaigns, accounting, or administrative support. Contractors and freelancers work independently and usually have multiple clients, so they won’t be fully dedicated to your business. However, outsourcing allows you to avoid the overhead costs associated with hiring employees, such as benefits, taxes, and insurance, making it a more flexible option for handling specialized or short-term tasks.
Pros and cons of hiring vs. outsourcing
Hiring employees
Pros
- Team loyalty and investment. Employees are more invested in your business's success and often contribute to a long-term vision.
- Better collaboration. Employees typically work together in person or as a cohesive remote team, which can lead to better communication and collaboration.
- Increased control. With employees, you have direct control over their schedule, work process, and quality of output.
Cons
- Higher overhead costs. Salaries, benefits, insurance, and equipment add significant expenses to your payroll.
- Long-term commitment. Hiring an employee is a long-term commitment, making it harder to adjust to changing business needs.
- Onboarding time. Training new employees can take time, which may delay productivity.
Outsourcing
Pros
- Cost-effective. Freelancers or contractors can be hired on a per-project basis, eliminating the need for long-term financial commitments like benefits or retirement plans.
- Flexibility. Outsourcing allows you to scale up or down as needed. You can hire talent only when required and avoid idle employees during slow periods.
- Access to specialized skills. Outsourcing gives you the ability to hire experts in specific areas like web design, SEO, or legal advice, without needing to train an internal team.
Cons
- Less control. Contractors may not be as committed or accessible as full-time employees, and they might follow their own methods rather than adapting to your company’s workflow.
- Quality inconsistencies. The quality of work can vary greatly among freelancers, and managing multiple contractors can become time-consuming.
- Limited collaboration. Contractors are often remote and may not integrate well with your team, which can impact communication and team cohesion.
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Which positions should you outsource and which should be in-house?
Deciding which roles to outsource and which to keep in-house depends on your business's needs and goals, but here's a sample of what works well outsourced and what you may want to hire for.
Best roles to outsource
- Accounting and bookkeeping. These tasks often require specialized knowledge, and outsourcing them can save you from hiring an in-house accountant for what may only be a few hours of work each month.
- Digital marketing and SEO. Freelancers or agencies can handle your marketing strategy on a project basis, without the need for a full-time marketing team.
- Web development and design. Building or updating your website is typically a one-time or periodic need, making it a good task to outsource to a professional contractor.
- Content creation. Outsourcing blog posts, social media content, or graphic design can give you access to specialized talent, allowing you to maintain a steady content flow without overloading your team.
- IT support. For small businesses, it’s often more efficient to outsource IT support to manage occasional tech issues rather than hire a full-time IT staff member.
Best roles to keep in-house
- Customer service. Having dedicated employees for customer service ensures consistency and provides a direct connection between your business and its customers.
- Operations management. Your day-to-day operations, from supply chain management to product development, are essential to the business's core. Keeping these roles in-house helps ensure smoother operations.
- Sales. Sales teams are often the backbone of a business and keeping them in-house allows you to align their efforts directly with your goals and branding.
- Human resources. An in-house HR team ensures compliance with employment laws and cultivates a positive company culture.
- Product development. If your business relies heavily on innovation, having an in-house product development team helps maintain control and ensures alignment with long-term goals.
FAQs
Is it cheaper to outsource or hire an employee?
Outsourcing is generally cheaper in the short term because you avoid the costs associated with full-time employment, such as benefits and insurance. However, hiring might be more cost-effective in the long run for ongoing, day-to-day tasks.
How do I know if I need to hire or outsource?
Consider the nature of the task. Hiring an employee might be the better choice if it requires long-term attention or is core to your business (like customer service or operations). Outsourcing is usually more efficient if it’s a one-off or specialized task (like web design or accounting).
Can I outsource part of an employee’s role?
Yes, many businesses outsource specific aspects of an employee's job. For example, you might hire a marketing manager in-house but outsource the technical elements of SEO and web analytics to an external expert.
What are the risks of outsourcing?
The primary risks of outsourcing include a lack of control over the freelancer's work, potential quality inconsistencies, and the possibility of communication issues if the contractor is in a different time zone.
How do I manage outsourced tasks?
Use project management tools like Asana, Trello, or Monday.com to keep track of outsourced tasks. Regular communication through platforms like Slack or Zoom can help ensure contractors are aligned with your business’s needs.
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Running a business takes everything you have. Getting fast and easy funding doesn't have to.
- Apply Online In Minutes
- Decision as fast as 24 hours
- Receive between $25k-$6m
The bottom line
Deciding between hiring and outsourcing comes down to balancing cost, control, and long-term business needs. Hiring in-house employees is often the better choice if your business is scaling quickly and needs day-to-day support. However, outsourcing can provide flexibility, cost savings, and access to expert skills for specialized tasks or short-term projects. By carefully assessing each position and function, you can create a strategy that blends both options to maximize efficiency and growth for your small business.
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Writer
Lissa Poirot is an award-winning journalist and editor with a focus on finance, travel and health. Her work has appeared online and in print, and she has often been cited as a source on both. She currently resides in Pennsylvania.
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