When to Outsource…When NOT to Outsource

Recently, at Ben’s SEO forum, a poster asked the what the best advice for outsourcing work for your online business was and mentioned that Grizzly nor I outsource. Just to clear things up, I do outsource….I just don’t outsource the content creation of my business. And with that said, today I am going to discuss when I think you should outsource and when I think you shouldn’t outsource. Discussion on this topic is encouraged as outsourcing is something that most new marketers don’t understand.

Alot of marketers automatically assume that in order to make money, they will need to outsource. Some make the assumption that the quicker they do it, the quicker they will make money and rush headlong blindly into paying people for things that won’t improve their bottom line.

It is kind of like buying those “magic bullet” tools….you know the kind….the software that is supposed to make life easier on you by getting you ranked…but instead act more like a money drain than an actual tool that will help you improve your business.

Typically, when I consider outsourcing, I ask myself these questions….

• Is the website already generating money?- As a general rule, I won’t start to outsource until I can leverage the money I am making on the site to go towards the costs of outsourcing. Most who first start to outsource view it as a way to eventually make money. I think that unless you know your averages and can prognosticate into the future with relative certainty that you will profit from outsourcing, then outsourcing is not something to take lightly. If you already have money coming into your online business, the losses you take won’t be coming directly from your pocket.
• If it isn’t generating money, can I build a timeline to know when it will pay for itself? In some cases, like outsourcing product development, you don’t know definitively what will happen (actually, you never do). In this case, I will look at similar products and the monetization model that they are following to get a better and broader view of roughly how long it will take to reach profit. If the timeline is long, I may reconsider….
• If I outsource, will I be able to free myself up to do other more important things and will it have a positive benefit for my business that warrants an additional “employee” for the costs? The biggest part of outsourcing is to free up your time. A outsourcing trap that you can find yourself stuck in is outsourcing things that really don’t matter in the grand scope of things.
• Am I at a point in my business where I can’t do it myself and it needs to be scaled up?Eventually, you will reach the point where you can’t do everything yourself. If you already are in profit, then you may need to hire additional temporary employees to handle the more mundane things in your business.

If I can answer yes to 2 of those 3 questions, then I will consider outsourcing. If the business isn’t generating money and/or I don’t have an accurate feel for what to expect (which I will explain later), then I won’t.

When you “outsource”, you are essentially hiring a part-time on demand employee

To realistically look at outsourcing, think of it like you would if you owned a small business like a quick check mart. If your business after expenses is making $100 a day profit, and assuming that you yourself are on the payroll, you could probably hire a cashier. It would eat into your profits but you would be able to free yourself up from the menial tasks of running the front and focus on another part of your business…..like improving your margins. This costs you over half of your profits at $65 a day. You still have a net of $35 though.

Let’s imagine that you have tightened your margins up, and placed high margin, high impulse products up closer to the point of sale, add some specialty items and as a result, you increase your profits by 25%. You also decide to test opening up an hour earlier and staying open an hour later and increase your profits another 2% after cost, breaking even after labor.

So, using this scenario, you will have accrued a cost of $65 but after everything was said and done, you have not only freed yourself up from the cash register but your business is still profiting by $60, allowing you to focus on other parts of your business.

After a few months, you decide to add a deli to your quick mart in which you will sell cold cut sandwiches, gyros, and other easy to make items. You also add a fountain machine and high margin items like chips and cookies, which you bake there. The total cost is $5,000 for the addition. It is open for business for 2 hours at lunch and 3 hours at dinner. You run that part of the business yourself at first. The deli increases your overall net to $80 a day in profit after food costs.

It takes you 6 months to for the deli to pay for itself. After that, you hire someone to manage the deli, costing you $40 a day.

So, using this example, you have OUTSOURCED the cashier…then OUTSOURCED the cost of renovations….and OUTSOURCED the deli operations.

You began with $100 in profit. You ended with $105 in profit. Next step…streamlining operations…..

You find a guy that can not only work the cashier, he can also make sandwiches. You drop the cashier you currently have and hire him on for $1.50 an hour more. You hire a part time weekend cashier as well. Suddenly, you have someone there that can work the cash register AND the deli throughout the day. You still help out during peak times but he can make sandwiches and operate the register during non-peak hours. The result is you pay an additional $15 a day but you make $50 extra a week.

Do you see the logic in outsourcing using this example? Outsourcing is very similar to having employees. Actually it is more like hiring a contractor to do your work for you.

But notice the reasoning why the example works.

1. The business was already profiting and had money coming in which also means that any losses won’t come directly from your pocket.
2. The reasoning behind “hiring” someone was to free yourself up to do the more important things, like increase ROI and tighten margins which justified you taking on the expense of hiring someone..
3. When you reach a point where you think the business needs to be scaled, then you add an “addition”.

Everything you do should be measurable….

If you have been told that it is all about building links and you think that outsourcing link building will help build the bottom line, but don’t have an accurate way to determine why building links will improve your bottom line AND don’t have figures to back up your suspicions, then you will either need to do the leg work to figure it out OR you don’t need to outsource the job.

This information can come from a variety of places. You can find reports on industry averages online for example. You can also guesstimate based on the emphasis that your competition places on the conversation. But frankly, nothing will be more definitive than your own experience.

Just to use myself as an example, I can pretty much tell you what I can count on if I build 100 pages on hubpages because I have done it. I can also give you an average conversion rate for some of my lists. I also know the average net profit that a publish article will bring in. And while I know that I know this comes from experience, if I didn’t sit down and track it, I would never had been able to formulate it to come up with something that can be measured accurately. This information is more important than you think.

If I know that I will average $1,200 a year (just an example figure..the average is actually higher) by creating 100 hubpages, I have a measureable way to understand what I can afford to use for outsourcing.

Since I know that 100 hubpages are worth $1,200 a year, I could invest ALL or part of my profits back into the business by outsourcing either the hub creation or the link building. Let’s say that I decide to go all out aggressive and try to scale it by outsourcing the content creation…

Let’s say that I have found someone willing for me to pay them $1,200 for 125 Hubpages on my behalf. By knowing my averages, I know that over the course of a year, I will likely double my potential earnings and cover my expenses within a 5-7 month window.

Now, I am simplifying this but I think you get the point….

I know about what to expect because I have personally experienced it. While past results may not be indicative of the future, I know that if I build 100 hubpages, a round about figure of what to expect.

Know Your Averages….Know Yourself….Know Your Business Model…

Probably the biggest key to knowing whether you need to outsource is to know what you are hoping to accomplish and what your website/business model is.

There are cases where outsourcing would actually not be prudent. Like the example below:

John Taylor, a main stay at the warrior forum, summed it up pretty well….

Let’s say you promote someone else’s product as an affiliate and
you earn a 50% commission on a product which sells for $67.00.

The sales conversion rate for the traffic that you are sending to
the merchants sales letter is converting at 3.6% and that translates
into an income of $1.20 for each visitor that you send to the site.
The equation is: ($67 x 50% x 3.60)/100= $1.206

Now, if you are using paid traffic, you know that to make a profit
you need to spend less than $1.20 per visitor.

Let’s say you are using an advertising network and you are paying
$13.50 per 1,000 impressions and you are getting a 1.3% click
through rate. Your actual cost per visitor is $1.04.
The maths: $13.50/(1,000 x 0.013)= $1.0385

Great! You are making a profit of $0.16 per visitor.

What would I outsource if I was to build an adsense empire?

Up to this point, I have focused on the reasons to outsource if you have your own product, are doing list management or affiliate marketing. But what about contextual ad networks like adsense?

Is there a way to outsource your work if you are building adsense sites?

The answer is yes but once again, you have to have a way to understand on average what each site is worth. Some of the things I would use would be CPM because this metric would help me understand about how much each visitor is worth and therefore how much each page on the whole is worth- this data could give me a broad view of how much I could aptly afford to spend before I have to start dipping into my own pocket to pay for it. It would also give me a round about “guess-ti-mation” of how long it would take me to get to profit if I was to outsource.

You can either gather this data from your own experience OR you can take a look at the business models of websites that are already doing this.

Example- WiseGeek, which is a very broad article private database, is monetized by adsense. They cover topics that range in spectrum, from remedies to flooring. In the past year, they have managed to build 40,000+ pages of unique content and rank for a variety of long tail keywords. Since they are private, you have to assume that they either have in house employees writing the content or they have found a cheap way to outsource their content generation.

Nonetheless, they are doing it and in all likelihood, paying for it. And if they are paying for it, chances are they are making a profit from it…

If I were going to base my model after their model, I would probably write them a long letter or call them telling them that I would like an interview and explaining that I was doing an exposé on business models that use adsense as their main source of income. I would ask if they would mind if I asked them a few questions.

The questions would be:

• What was their business plan and has it changed since the inception of their company
• How did they come up with their business model?
• What kind of challenges did they face and what challenges did they not expect to face?
• What and how much capital did they start with?
• What they would do different if they started afresh today.

There would be more questions, but I imagine the wheels in your head are turning. The point I am making is that if you want to learn how someone is doing something, in many cases, all you need to do is ask.

If a company is using employees, then chances are you can do the same by out sourcing. But you have to be smart about it. If it doesn’t improve your bottom line and there is no way to measure it, then out sourcing will be like shooting darts in the dark. Sometimes you will hit something but most of the time, you won’t.

Problems with Out sourcing that No one Talks About

There are problems that come with outsourcing. First of all, bear in mind that just like managing employees, you will be managing your outsourcers. What this means for you is that if you can’t give them clear, definitive guidelines of exactly what you want, then chances are you are going to be disappointed with the output.

And sometimes, even when you do give clear instructions, things can still be lost in translation. What I mean is that most of the time you are dealing with people who speak english as their second or third language. Sometimes managing them you have to spell everything out exactly as you want it and not take for granted that they get it.

Also, although sometimes you can find a diamond in the rough, so to speak, most of the time you will get what you pay for. In other words, if someone is offering to write at $1 an article, you will probably get a $1’s worth of quality. It isn’t always the case, but as a rule of thumb it is what you should expect.

A final thing to think about and then I’m done…..

Finding good outsourcer’s is hit and miss. You will find that you will spend a lot of time hiring and firing them. If they are new, don’t give them a big job…test them. If they come through, hire them for future projects. When you find the ones that are good to work with, pay them well and they will stick with you. Most out sourcers aren’t looking for one and done projects. They are looking for someone that will continuously pay them. Just something to think about.