Entrepreneurs are taking advantage of the benefits of technology as more and more are shifting from traditional brick-and-mortar enterprise to the online business model. It only seems natural that these entrepreneurs apply the cost effectiveness of outsourcing to their online business.
The online business has emerged as the ideal business model because it offers flexibility in working hours. It also requires lower capitalization which gives business owners better returns on their investments.
The operating costs are comparatively lower to running a physical location. One can set up a home office so payment on rent is taken out of the equation. Putting people on fixed payroll is not necessary anymore due to outsourcing employment options.
Still, having an online business is not a guarantee for success. Similar to their brick-and-mortar counterparts, many online businesses have also shut down operations.
Mismanagement of tasks and finances is usually the culprit but some business owners tend to put too much on their plate to further cut down their expenses. To avoid this pitfall, outsourcing should be highly taken into consideration and integrated in the operating system. Handling unfamiliar tasks can adversely affect your entire business so it is wise to pass these on to reliable hands.
How Cost Effective is Outsourcing?
Outsourcing is a cost effective business solution. You will be able to get more mileage on your startup capital.
1. Low overhead cost
a. Rent and Utilities.
Rent is a huge item on the operating expense account. Business owners do their best to negotiate rental rates to no more than 20% of their gross revenues. But outsourcing changes all of that.
When you adopt a virtual work setup, you can efficiently run your business from home. You do not need a big space when you are starting out, so business related expenses can ride on your house bills which you regularly pay anyway. There is no need to invest a lot on office equipment too.
When it comes to inventory, you can dropship your items so there’s no need to rent a warehouse or buy big volume of stocks upfront. Drop-shipping is an order fulfillment method where items you sell are directly purchased from a 3rd party supplier who ships the goods directly to your customers.
If you sell your own products, you can tie up with 3rd party logistics company to manage inventory and handle shipping for you. There is no to need to invest heavily on manpower, delivery trucks or warehouse spaces.
Outsourcing allows you to scale down your workforce. Administrative tasks that are traditionally handled by different people can now be assigned to one to two virtual assistants.
When you hire full-time employees, you have to assign them 8 hour work shifts. You are also obligated to pay complete benefits. By contrast, with virtual assistants, it is up to you to assign them their work hours.
You are also not required to pay benefits. It is estimated that you save 40% on manpower costs when outsourcing work to virtual assistants.
Accounting, delivery, warehousing and marketing jobs can all be contracted on a per project basis. Your business will be more sustainable when you cut down on your recurring expenses without compromising work efficiency.
2. Low Transaction Cost
People have changed their shopping habits. They have shifted their attention from malls to online stores. When you have a good website in place, all sales transactions can be done digitally.
Customers can view, order and pay items online already. There is no need to have a salesperson and cashier manning your retail business. In addition to that, delivery can be facilitated thru outsourced companies so you save on transportation cost as well.
3. Flexible Business Hours
When you have a virtual workforce and an effective website, your company can run 24/7. You do not have to pay overtime to make this happen. Opportunities to earn will keep coming even when you are on break.
For example if your online business is based in the US East Coast, you can outsource customer service to virtual assistants from remote locations such as the Philippines and India. Because of the time zone differential, you have agents managing customer service inquiries while you are sleeping.
The cost? You only pay for the hours worked by the virtual assistants. No overtime pay. No hazard pay. And the rates charged by virtual assistants from remote locations are much lower compared to their North American counterparts.
You can work seamlessly with your people across the globe without breaking the bank. Your online business has a better chance of survival in the highly competitive market when you operate this way.
4. Reduced Marketing Costs
You can promote your products globally without the need for physical representation. You can expand your reach effectively when you outsource marketing tasks to the experts.
Let them handle SEO, Social Media, Blogs and Multimedia marketing for you. You get more in return when you invest on skilled people to bring your company and products to consumers’ awareness.
The rates are negotiable. You can recommend payment based on results or on a per project basis. Many of these third party service providers are willing to work within your budget.
You may think that there is no need to outsource since you are in the startup phase only. This is a crucial stage and you need all the help you can get. Rely on the expertise of others and allow yourself to learn and grow in the process. A well-managed online business will certainly yield a good return on your investments.
When you start up an online business, be ready to spend in order to grow. The key to keeping it afloat is to use your funds wisely. Do not scrimp on areas that will contribute to the growth of your business.
After all, expenses incurred will be offset once your business draws in more clients. Just think of how cost effective outsourcing is to your business. Your earnings will certainly outweigh your expenses in the long run.
As more and more entrepreneurs join the online market, you have to make sure you get ahead by running your business sensibly. Do not be afraid to take risks for as long as you have backup plans to cover you when things take a nosedive. There will be hits and misses in outsourcing, just stay focused and in time you will be able to form a solid business team.