Choosing whether to hire in-house or outsource to a professional service provider has a huge impact on your organization’s expenses, performance, and culture.
Many business leaders struggle to decide when to use each hiring option since there are so many factors to consider. In this article, we’ve summarized the research on this subject into three topics that are key for your decision-making process:
- Pros comparison of hiring in-house versus outsourcing
- Cons comparison of hiring in-house versus outsourcing
- How to decide if you should hire in-house or outsource
By the end of this article, you’ll know which solution is right for your hiring needs.
Pros of Hiring In-House Vs. Outsourcing
Hiring in-house and outsourcing both many benefits that support various business needs. The table below lists some of the most valuable pros of each hiring option.
Pros of Hiring In-House
- Employees quickly learn your company’s culture which helps them understand the nuances of what you do and reduces miscommunications. Your employees may also be more accepting of other employees as opposed to contractors.
- It’s easier for in-house employees to collaborate which makes them better-suited for strategic projects that require a lot of input from people within your organization.
- Salaried, in-house employees will typically work extra hours when needed. Most in-house employees accept that they’ll occasionally need to work late to help out their team. Contractors, however, are often paid for a fixed number of hours or deliverables and you need to make plans in advance to have them work extra.
- You have full control over who you work with. Hiring employees lets you find someone with all the technical skills you want plus a personality that easily works with your team
Pros of Outsourcing
- It’s cheaper than hiring in-house. According to a Deloitte survey, 62% of companies report 10% to 25% savings when they outsource and the remaining 38% of companies reported savings as high as 40+%.
- You save time because outsourcing companies require minimal management from your team. Reputable firms have systems in place to ensure you’re given on-time, high-quality work without you having to constantly touch base with your outsourced team.
- It’s easy to change the amount of support you’re paying for as your needs ebb and flow. This provides cost savings during your slow periods and ensures quality during your busy periods since you’re not overworking a fixed team of employees.
- You have access to a wealth of knowledge. Contractors are some of the most skilled employees because of their diverse professional experiences. This benefit is compounded when you outsource to a professional services company because they tend to create shared repositories of knowledge to ensure their employees are agile and follow well-honed best practices.
Overall, outsourcing is a cost-effective solution for accessing talent on demand. Meanwhile, hiring in-house can be a better way to retain collaborative talent.
Cons of Hiring In-House Vs. Outsourcing
Though hiring in-house and outsourcing both have their advantages, there are significant downsides to each as well. Consider these factors when determining which option is right for you.
Cons of Hiring In-House
- It’s significantly more expensive than outsourcing. As an employer, you’re responsible for employee benefits, tools (desks, computers, etc), recruiting and hiring, training, and other costs that make in-house employees more expensive even if the hourly wages are comparable to what an outsourcing company will charge you.
- You may not have enough work to justify the costs of a full-time employee. This is especially true for small businesses that need help with business processes such as admin support, marketing, and HR.
- When employees quit, you’re left struggling to find replacements. A two-week notice isn’t nearly enough time to find and train a new hire so, in the interim, other members of your team have to take on the workload of the missing person.
Cons of Outsourcing
- Outsourced employees are often excluded from your company’s main communication channels which can occasionally lead to important information not being shared with them and a general disconnect between them and their counterparts in your company.
- Culture and language differences might cause miscommunications if you outsource to other countries. This is more likely to occur if your in-house and/or outsourced team lacks a strong familiarity with the other's culture.
- Outsourcing key functions of your business can be risky because, if a provider you’re dependent on is no longer willing or able to provide the same output, you’re put in a very challenging situation. To limit this risk, work with established companies as opposed to independent contractors.
Hiring in-house is an expensive option that may not be worth it for many hiring needs. However, you need to weigh the costs against the communication challenges that may come with outsourcing.
How to Decide if You Should Outsource or Hire in House
Since hiring in-house and outsourcing have comparable pros and cons, most smart business owners don’t favor one over the other. Instead, they strategically choose which business functions are best completed via each hiring option.
Ask yourself these three questions when you’re trying to decide whether or not you should outsource a business function:
1) Does the process directly relate to your business’s core value proposition?
Deloitte’s Global Outsourcing Survey found that 57% of companies outsource so that they can better focus on their core business.
Focusing on your core business activities and outsourcing the rest has many benefits including:
- It helps you create a business culture where everyone is focused on achieving the same goals.
- It reduces the amount you spend on business functions that don’t directly contribute to revenue growth.
- It’s a cost-effective way to improve your team’s efficiency. Outsourcing miscellaneous business functions enable you to have an in-house team that is specialized and able to leverage the support of outsourced workers.
When you’re a growing company, being laser-focused on your product/service is one of the most effective ways to ensure your success. To keep your organization lean, consider outsourcing the following business functions:
- HR
- Admin support
- Accounting
- Sales support
- Website development
- Plus other business functions that aren’t product-related
2) Do you have the time to recruit, train and manage additional employees?
Hiring and managing in-house employees requires a significant time investment. Before you hire, consider whether your leadership team has the time to effectively manage additional employees and if it’s worth their time to do so.
Here are some signs that your business doesn’t have the capacity for additional employees outside of product/sales roles:
- You don’t have a manager who has the knowledge and/or time to effectively guide employees on projects that are outside of your core business.
- Your company already struggles to keep up with your existing HR needs.
- It’s challenging for you to find affordable talent to serve in non-core areas of your business.
- Your management team's time is better spent on other activities.
If any of those points apply to your business, outsourcing non-core functions may be the best option for you.
One of the biggest benefits of hiring a professional services firm is that they’ll take full responsibility for finding, training, and managing the people who will work on your account. This lets your managers focus on empowering your core employees.
3) What are the complete costs of hiring in-house vs. outsourcing?
When you’re comparing the cost of outsourcing vs hiring in-house, hourly wages are often deceptive because they’re only one piece of the total costs. You need to consider additional expenses including:
- Benefits
- Perks such as bonuses and subsidized food
- Taxes
- Materials (computer, desk, software, etc.)
- Management time
- Training
- Recruiting
Outsourcing is typically cheaper since you’re not responsible for most of those costs. However, there are some cases when the reverse is true. Here are some examples:
- You need ongoing support in a specialized and expensive business function. Marketing is a great example of this. Often, it’s more affordable to hire a generalist in-house than outsource everything to an agency.
- You have a large, growing need for a business function that, though not part of your core value proposition, is critical to your business’s success. For example, if your team is growing rapidly it may be time to hire a couple of HR people.
- You need access to immediate support for a critical business function. For example, you have a complex software setup and need someone to troubleshoot issues throughout the day and make time-sensitive improvements.
Answering these three questions will help you answer which business functions you should outsource and which you should keep in-house.
Learn More About Outsourcing
Interested in outsourcing your admin, sales, and or operations support? Learn what it's like to work with our virtual assistants.
Our free guide will explain:
- What kinds of tasks you can delegate to your assistant
- How to get your VA set up with your tools
- How to develop a productive relationship with your virtual assistant
- Our process for training your VA to excel at your projects
- What we do to ensure you never go a business day without service - even when your assistant is out of the office
- How to use Prialto to support many members of your team