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How outsourcing cuts business costs

Posted by Tasnim Ahmed

October 18, 2022    |     4-minute read (659 words)

Outsourcing has become a reliable, cost-effective practice that enables businesses to function at an optimal level while keeping overhead in check. The key to outsourcing’s success lies in its ability to streamline important tasks without burdening your employees, eliminating the need for additional training or new hiring.

Simply put, outsourcing entails handing over certain business tasks to an external vendor or third-party expert at a significant savings compared to relying on in-house employees.

At present, outsourcing is gaining popularity as a tactic for small- and medium-sized businesses, as well as larger enterprises. According to recent statistics, the global outsourcing market is estimated to be worth $90 billion, with about 54% of businesses using third-party customer care staff. There are roughly 59 million freelance workers in the U.S., and about 300,000 jobs are outsourced from the U.S. every year.

Why businesses choose to outsource

The primary reason why businesses decide to outsource is for cost efficiency. In a survey by Deloitte, 88% of respondents who outsourced said it allowed them to achieve their objective of reducing costs. Other objectives cited by respondents included standardizing and improving business processes, driving business value, accelerating digital initiatives, introducing new capabilities and boosting overall business strategy.

Which functions can be outsourced?

Businesses may choose to outsource an array of functions, such as accounting, sales and marketing, IT, HR, customer service and shipping and logistics. In the process, given that they’ve selected a reputable service provider, they save money and gain access to a wider talent pool.

Categories of outsourcing

Outsourcing can be classified into three broad categories:

1. Business process outsourcing – Refers to hiring a third-party service provider to carry out one or more business functions in a company.

2. Information and communication technology outsourcing – Refers to hiring a third-party provider to handle IT needs.

3. Software outsourcing – Refers to hiring a provider to develop software solutions.

Such services help businesses stick to a budget and to pay for what they actually need in terms of professional expertise as opposed to hiring a full-time staff. 

6 ways outsourcing reduces costs

Core business refocus. Outsourcing repetitive, mundane, clerical tasks leaves businesses with more time to concentrate on their core competencies. It frees up time for employees to can concentrate on tasks that go toward increasing revenue. 

More efficient use of resources. If existing manpower’s core skills are being diverted to important but mundane, noncore tasks, outsourcing offers a cost-effective solution. For example, bookkeeping can often be outsourced at a fraction of the cost, liberating your employees to concentrate on the core, revenue-generating tasks you hired them for.

Improved time management. When you outsource, you save time. With the knowledge that essential business tasks are being performed by the outsourcing service, so you can focus on more important tasks. Your efficiency is boosted and you save money that would have been spent on wages, infrastructure and the like. 

Curtailing costs for recruiting, training. Through outsourcing, one of the biggest costs that can be reduced is the expense of recruiting and training. You might be doing great work in a fast-moving industry, but when you bring in new employees, a certain amount of training is required for them to be able to do their work properly. Recruiting and training take time, and time equals money, but outsourcing lets you transfer this responsibility to capable professionals.

Brand-building. The ability to build a business’s brand is one of the unspoken benefits of outsourcing. The organization is able to focus more on revenue-generating tasks with outsourcing professionals handling noncore tasks. This can bring a marked change in how your business is perceived.

Availability. An appealing yet often-overlooked potential upside of outsourcing is that by virtue of different time zones, your business could offer longer hours of operation. That calls for faster turnaround times and results. Since there will likely always be someone working or managing, time off can be accommodated without straining colleagues.

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