May 19th, 2021

Cost-Benefit Analysis of Outsourcing, Strategies, and Current Examples

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As a successful mid-sized business, you have to carefully consider your growth and expansion. Your current business processes have been working so far, but it is time to revisit your strategy and consider outsourcing those tried-and-true processes.

Perhaps you feel like outsourcing could refresh your organization, save money, or free up time for your employees. But you’re unsure of the costs vs benefits of BPO and how to even get started handing those tasks over to others.

Financial considerations are arguably the most important factor in outsourcing. So, let’s dive into the analysis of outsourcing- costs, benefits, strategy, and ROI for your organization.

First, Let’s Talk About Market Size for BPO

Before we dive into the cost-benefit analysis for outsourcing, first, we need to talk about the market size for BPO. Business process outsourcing (BPO) is a multi-billion-dollar industry, thanks to a shift in work culture and the need for workplace adaptation. To put an actual number on it, the global BPO market size was about $232 billion in 2020.

That number is expected to grow tremendously from 2021 and beyond. We are not even taking into account figures from freelancing platforms like Fiverr or Upwork.

Fun Fact: As a benchmark comparison, the market size for BPO achieved an annual growth rate of 4.4% from 2012-2016. That percentage is now about 8.5% for 2021-2028.

It is actually quite interesting. The concept of business process as a service (BPaaS) seems to be one culprit driving the market growth. Customer service activities, IT, and telecommunication made up the bulk of the BPO market share in 2020.

 

Cost-Benefit Analysis of Outsourcing - how outsourcing can reduce overall costs

How Outsourcing Can Reduce Overall Costs

Here is a shocking fact for you: outsourcing is not killing jobs. In fact, outsourcing actually helps companies grow by allowing their US-based employees to work on their craft. The concept of outsourcing business processes to someone overseas is not new, yet many companies are wary of it.

Of course, there are many questions and concerns, like receiving valuable work or ease of communication. However, the overall quality of BPO service providers has made a jump in recent years to accommodate today’s standards.

If you’re on the fence about making that jump, we understand. We love reducing costs while maximizing value just as much as anyone. However, you might be surprised at how easy and cost-effective BPO can be for your company.

Wage Differences

Probably the biggest way offshore outsourcing can reduce costs is the difference in wages. Our western world puts a high price tag on the work we perform. On the opposite side, work can be performed at a much lower cost- sometimes up to 60% off or more. This is particularly true for data entry or customer service tasks.

No Training or Recruiting Fees

Since you are hiring someone who is already skilled in the tasks you need, you won’t have to train them. That means no training costs or downtime for your current staff members. You also won’t have to spend any money recruiting potential full-time or contract employees. At most, you’ll hop on a video or phone call to discuss your business needs.

Infrastructure Savings

Here’s a piece of good news. You will not need to spend extra money on infrastructure or adding new equipment to your office. Your BPO service provider or independent contractor will have all the supplies and equipment needed to get the job done. When we are talking about big equipment or pricey technology, that leads to HUGE cost savings.

Refocused Budgets

Handing your processes over to someone else, at a lower cost, means you can refocus your budget on what matters. Not to say those outsourced tasks don’t matter- because they do. But where you lower costs, you can expand budgets in other areas that generate revenue or are high-level activities in your business structure.

For example, saving 50% on data entry tasks means you can add 20-30% to marketing spend. Or another area that really needs a budget boost without draining extra money from your pocket.

 

Benefits of Outsourcing Your Business Processes

When you take into account monetary savings, the benefits of offshore outsourcing keep racking up from there. We could probably go on and on about the benefits of outsourcing your low-level processes. But we will keep it simple and only highlight a few that we feel are critical to your organization.

24/7 Support

If you manage to choose a contractor or provider who compliments your time zone, you’ll thank yourself. Naturally, there are benefits to working with someone in the same time zone as you. However, it is actually more beneficial to partner with someone where the time gap is about 12 hours. That means you can assign tasks during your day, go to sleep, and wake up with a finished product. So, you’ll essentially be on a 24/7 flow.

Low Fluctuations in Workforce

Imagine a busy holiday season in the United States. Sometimes, the workforce dwindles or becomes less available to meet your needs. Outsourcing means you open the door to a wider workforce and can hire from a larger talent pool that might not be so limited by fluctuations in the States.

Risk Management

An overlooked benefit of outsourcing is better risk management. Let’s say there is a national disaster or crisis that occurs, and it affects an area of your operations. Individuals located outside that area or in a different country would not be affected. They could keep working through the chaos and help keep your day-to-day on track. So, in a way, this is a strategic method to manage risk.

Customization

This might be a given, but you can always customize the way outsourced activities are completed. You can set project completion times, budgets, deliverables, and more. It’s like having an on-call employee ready to do whatever you need them to do- except they live miles away.

 

Choosing Your Outsourcing Strategy

Before you even consider which outsourcing provider to go with, think strategy. You will obviously want to outsource the business processes that make the most sense for your company, your current situation, and plans for the future.

Any BPO strategy should not be taken lightly. Think about your potential goals and what you want to achieve. Do you want to…

  • Cust down on excess spending?
  • Move in-house processes to out-of-house vendors?
  • Gain a new perspective?
  • Increase intellectual capital for your company?
  • Expand your team without training & recruiting expenditure?
  • Nix processes that don’t have a high value?
  • Remove cumbersome tasks to free up your employee’s time?
  • Migrate to a more “virtual” business model?

 

Whatever your strategy, make a plan and document it. We do NOT recommend outsourcing your strategy creation. This is something personal that requires thought and careful consideration.

 

Current Examples of Outsourced Tasks

Like we mentioned earlier, customer service is one of the most outsourced tasks in 2020. However, there are many more segments of your operations that can be handed over.

Accounting 

Consider taking your finances to an out-of-house accountant. This might be tricky to outsource offshore due to currency differences. A skilled accountant who is based in your home country would be best.

Marketing

Need to spruce up your current marketing strategies, graphic design, or ads? Outsourcing this BP can really give your branding a fresh perspective and creative edge.

Sales

Consider outsourcing if you don’t have the personnel to make those sales calls or create online funnels.

IT

Along with CS, IT management is a widely outsourced industry. In 2019, the global market for IT was about $85.6 billion- according to Statista. You can do so much with IT- tech issues, software, hardware, programming, web development, etc.

Admin

Administrative tasks are another huge activity to handoff. Virtual assistants are becoming more and more popular, and using someone offshore is an incredible way to save on per/hour rates. This includes everything from scheduling to managing your emails.

Manufacturing

If you sell a physical product, taking your manufacturing overseas could give you more bang for your buck.

HR

The most common way to utilize BPO for HR is to hire a recruiting service. These recruiters can do all the heavy lifting for you and send you qualified candidates they have already vetted.

 

Cost vs Benefit of outsourcing

Performing a Cost-Benefit Analysis for Outsourcing

Now, on to the good stuff. You have done your research, and it’s time to start doing a cost vs. benefit analysis for outsourcing. Measuring return on investment can be tricky, especially if you’ve never outsourced before. There are a number of costs and benefits to weigh, some of them being quantifiable and others being qualifiable (aka calculable vs. conceptual).

 

Analyze Your Processes

Your first step in conducting a cost-benefit analysis for outsourcing is to define your strategy and goals clearly. Analyze your current processes and determine which ones you want to automate. Outline the goals, reasons, and expected outcomes you’d like to achieve from the transition.

This first step is critical because it will set up the remainder of your cost-benefit considerations. A clear understanding of your strategy (and every step involved in the process) will ensure clear communication and goal alignment with your chosen vendor. It will also ensure ROI is clear to calculate.

Calculate In-House Costs vs. BPO Costs

In order to compare costs, you need to know how much it costs to perform these tasks in-house. What are you currently spending? What expenses would be necessary to achieve your goals if you kept things in-house? Would you need more staff or equipment? Take everything into consideration and itemize every cost related to your chosen process.

Note: Don’t take into account money that’s already been spent and cannot be recovered. We are focusing on future expenses.

Next, perform the same cost analysis for outsourcing that Business Process. You’ll need to have quotes on hand from your prospective service providers in order to make that comparison.

Analyze Potential Benefits

Last, subtract your in-house costs from your outsourcing costs to see the difference. Is there a significant difference that would make an impact on your bottom line?

Carefully weigh both the financial AND non-financial benefits. Consider any intellectual capital that might be gained. Also, make a note in your cost-benefit analysis for outsourcing, if your BPO provider can leverage their technology to increase your chosen tasks’ efficiency, effectiveness, and value.

Remember to invest in what matters the most. Each benefit should add up to outweigh the cost of doing things in-house, along with helping you achieve your goals.

 

Unity Communications- Global Award Winner for BPO

US-based companies are amazing at R&D, creative endeavors, product development, sales, and other professional crafts. But when it comes to repetitive, entry-level, and detailed tasks, sometimes it is better to outsource the work to keep wages and job satisfaction high.

Unity Communications was awarded as a Cluth Top 1000 B2B company in 2020 for BPO. If you want to get a taste of high-quality outsourcing and how it can benefit your company, take a look at our website and schedule a meeting to get started.