Both options have their advantages. Which you choose depends on a few factors.
Every business leader wants their business to grow and expand, but a business can only grow so much before it faces a staff shortage.
When this happens, businesses have two options: hire staff or outsource, and there are pros and cons to each.
Whether you're an early-stage startup founder or a small- or midsize-business (SMB) leader facing this choice, it can be a hard decision to make. To help you choose, we surveyed over 1,000 SMB professionals who have purchased or commissioned a qualifying service in the past 18 months*. Each has spent at least $10,000 on their most recent service engagement.
What kind of services do SMBs typically outsource?
In the survey, we asked business professionals in charge of purchasing services which types they most recently outsourced in the following five categories (organized from most-contracted to least).
1. Design and development
Thirty-two percent of surveyed businesses recently contracted a service provider for a custom software or web development project. This is a broad category that includes:
Whether or not your business works in technology, your customers still expect a modern experience from your website, mobile apps, and other provided tools and offerings. But you most likely need a developer, a designer, or a project manager to keep such projects on track—or finish it at all.
Hiring a development and design services provider means you get the entire team you need for the time you need them. And this team is used to working together, already has its own process, and is ready to get started right away.
2. Data intelligence
Of the businesses surveyed, 28% hired a service provider for their most recent data intelligence project. These providers use the data from your accounting software, web analytics, and other sources to uncover insights that help businesses make better decisions. Data intelligence service providers include:
Outsourcing data intelligence makes sense for most SMBs, as they often lack the budget to hire a full-time data scientist. Such an in-demand and valuable in-house employee can take a big chunk out of your staff budget.
When you outsource this business function, you get access to not just one data scientist but a team of experts with years of experience for a lower price.
3. Cloud services
The cloud is the future of technology and requires specialized skills. Twenty-one percent of surveyed SMB professionals outsourced cloud services for their most recent service contract. These services can be broken down into two broad categories:
Cloud consulting providers help businesses migrate from older hardware-based infrastructure to a modern cloud computing infrastructure. Infrastructure-as-a-Service (IaaS) providers supply and manage cloud services on their clients' behalf.
SMBs may be able to handle this work in-house, but due to the specialized skills required even technical team members may require dedicated training.
4. Finance
In our survey, 11% of respondents most recently outsourced a financial function, including:
While money is the lifeblood of all businesses, it isn't the core competency for most. Getting the books right is not something you want to leave to chance.
Outsourcing all accounting tasks or even just payroll to an accounting firm gives many SMB leaders the confidence that their finances are being handled by professionals who are decreasing their potential risk for penalties or audits.
Hiring an in-house accountant is an option but can cost more, and doesn't always come with the benefits of having a team of financial experts with specialized knowledge in payroll, taxes, and business intelligence provide relevant and necessary services.
5. Marketing and advertising
Finally, eight percent of surveyed SMB professionals most recently outsourced marketing or advertising functions, such as:
Marketing and advertising have changed dramatically with every new digital marketing channel that opens up. Who knew we would be creating and sharing our own videos in the early days of the internet?
This means that, to build an in-house team, you need a wide range of skill sets that can result in hiring more people than you thought.
Outsourcing this business function to a third party instead gives SMBs a full marketing team for a fraction of the cost and time it would take to build a complete team on their own.
3 questions to help you decide between hiring vs. outsourcing
Here are three things to consider when you are deciding whether you should hire staff or outsource to a service provider.
1. What kind of support are you seeking?
The general reason you are considering outsourcing or hiring is that you have work that your current team can't handle. But is this because your team doesn't have the skills to do the job, or do they simply lack the bandwidth? These answers should inform your decision.
In our survey, 44% of SMB professionals outsourced because they didn't have the bandwidth but did have the expertise. This is often the case in the technology and accounting industries.
Accounting is seasonal, with a heavy push of significant work done during tax season. Accounting firms can augment their staff by outsourcing to handle an increased workload.
In technology, most of the work for a new project happens in the beginning while it is being developed, but once the project is live, the workload decreases significantly.
Another 31% of surveyed SMBs outsourced because they lacked experts on their team but did have the bandwidth. Just about every business needs an online presence, some need mobile apps to provide the best user experience for their customers, and most need advertising and marketing. But for many businesses, none of the skills associated with these needs or tasks are directly related to their core values or staffing capabilities.
If a business is focused on selling furniture online, it depends on a lot of technology but is, at its core, about furniture. That business' employees may not know HTML from JavaScript, and outsourcing can fill this knowledge gap with skilled individuals. Many SMBs don't have the budget or workload for full-time development, business analysis, accounting, or marketing teams, making outsourcing the best option.
/ The takeaway
When you are using a service provider to fill a knowledge or bandwidth gap, it is important to regularly re-evaluate your situation. At some point, an SMB that is using a service provider to handle a certain function may grow to a size where building an internal team becomes a better option, or a one-off pilot project can turn into a profit center and need a dedicated internal support team.
2. What’s your budget?
Another important thing to consider when deciding whether to outsource or hire is your budget. Most third-party service providers have multiple pricing models and tiers depending on which services you need.
In our survey, the average spend of a service contract was $73,821, and only 21% spent $100,000 or more.
The price you pay depends on the type of service provider you are hiring. Here are some typical pricing models for various provider types:
Development, design, and cloud services
Flat rate for the entire project
Hourly pricing that accounts for every worked hour
Monthly subscription model, usually for maintenance or other well-defined regular tasks
Business intelligence, machine learning, and other types of data intelligence
Flat per-project rate or hourly rate for a single project that has an endpoint
Monthly subscription model for regular reporting and support
Advertising and marketing
Flat per-project rate or hourly rate
Performance-based pricing, which takes agency performance into account
Payroll
Pricing based on the type of services you need (direct deposit, PTO tracking, tax assistance), how many employees you have, and the frequency of your pay period
Accounting
Monthly subscription model for day-to-day help, such as bookkeeping
Add-on charges for extra services such as advisory, reporting, or forecasting
/ The takeaway
If you are considering hiring in-house staff instead of outsourcing, you need to do more upfront work. Think about your goals and the number of employees you need to hire to support them. Service providers have entire teams that work on their clients' projects; you may need the same.
Workforce planning techniques can help with that, and calculating profit per employee will help you stay under budget. Also, remember that salary isn't the only consideration when factoring in the cost of a new employee; don't forget to factor in the cost of benefits and necessary equipment/hardware.
3. What’s your desired timeline?
The next thing to consider is how long you want your new initiative to take. Finding the right service provider or the right new employees can take time.
How long do you need support for your project/function?
Nearly two-thirds of service engagements are contracted for a year or less, and 39% of SMBs had a contract of six months or less. The length of the contract depends on the complexity of your new project and whether you will need long-term support.
For example, if you outsource payroll, accounting, or your cloud infrastructure, you need long-term contracts because these providers support ongoing business functions. On the other hand, the work involved in developing a new mobile app or launching an advertising campaign may only span months. But you may need long-term technical support for the new app. Once development is done you can decide whether to outsource or hire that support.
How quickly do you need work done on your project/function?
It takes some time to find the right service provider and sign a contract. The average amount of time SMBs spent researching and deciding on a service provider in our survey was 3.7 months. Only 14% took less than one month, and 16% took six months or more.
It's only after the contract is signed that work can begin, so be sure to factor this into your timeline.
If you are looking to hire in-house staff, that also takes time. You need to create a competitive job description to ensure you find and retain a high performer. If your HR department isn't prepared to hire, you may need recruiting software to streamline the process.
New hires also need to be onboarded and trained before they can start work on your new project.
Alleviate your staff shortage woes and grow your business with outsourcing
For many SMBs, outsourcing is a great option to keep everything running smoothly when they are growing. New initiatives often require skills that your team does not have, and a professional service provider that has already worked with hundreds of clients with needs just like yours can hit the ground running on your new project.
Even if you plan on hiring in-house employees later on, outsourcing can be a temporary solution to start a new initiative in the right direction with guidance from experienced professionals.
To help you find the best provider for your business needs, we've compiled lists of top service providers in the popular service categories such as digital marketing, advertising, custom software development, web development, accounting, payroll, and cloud consulting.