What are The Real Cost Savings from Outsourcing? Nov 22, 2022
How do you measure direct cost savings and opportunity cost savings from outsourcing?
Traditionally, costs arbitrage from outsourcing comes from paying a lower rate of labour cost deployment by having a resource working offshore. So that’s a direct cost saving vis-à-vis a resource, an inhouse team member working on a task, for example. But what about the opportunity cost of your time or your team’s time?
If you are a CEO or a senior management team member, you often undertake tasks that are not the best use of your time, even though you do them perfectly. And this happens a lot in small businesses where business owners are often scrambling to be everything from the chief salesperson to the accountant, and the IT person, depending on the resource constraints within the business.
But there is an opportunity cost of time and an opportunity cost of your time.
If an outsourced resource does those tasks, how do you measure that opportunity cost saving of your time that can then devote to client-facing tasks? , more tasks that generate revenue instead of administrative or compliance-based tasks but still needs to be done in a resource-constrained environment?
On charging and mark up on outsourced work
Enhanced margin can be achieved, where there’s an opportunity to charge the work done by the outsource team to the organisation’s end clients. We see that for our law firm and other professional services firm clients, where work undertaken by Team SBA can be on-charged by the practice to end clients. So, the real revenue multiplier in that situation is not just the lower deployment cost of engaging Team SBA but also the ability to on-charge that deployment cost to end clients at whatever margin that the firm thinks is reasonable in such a situation. Where an outsourced team becomes part of the extended organisation team, margin enhancement can deliver further boosts to the organisation’s bottomline.
Cost Savings on real estate and related costs
Deploying an outsourced team can save an organisation in the cost of real estate, rent, electricity, payroll tax, worker’s compensation and superannuation. These are traditionally “ direct costs” that you have to incur in the context of operations of deploying new team members in administration processes or in back office processes. So you can quantify these costs? Because often, that is a cost that a percentage is assigned but necessarily not quantified adequately.
So are Outsourcing Benefits Multi-layered?
So if one adds up the baseline cost arbitrage of deploying an offshore team, add that to opportunity cost savings of not having to do certain tasks, the ability to on charge the work done by the off-shore team to end-clients at margin you feel is reasonable and rationalisation of cost from saving on indirect costs like rents, electricity, rates, superannuation, worker’s compensation then all of that adds up to multi-layered benefits from deploying an outsourced team.
How does then the true cost optimisation from having an outsourced team look like for your business or for your practice? Clients of team SBA enjoy these multi-layered benefits from deploying team SBA, explore how your business can experience this critical competitive advantage