Back office outsourcing vs inhouse: what is more cost effective?

Almost all businesses at different stages of their life cycle face the choice of whether to perform inhouse tasks or outsource them. How to understand the intricacies of the process and not make a mistake? Is outsourcing really cheaper than inhouse specialists? We will tell you about it in our article.

Challenges for businesses in the Back Office outsourcing

Your back office consists of complex operations with many interdependent functions. Simply put, if one function is not working properly, all the other functions suffer. Here are some of the most common problems that arise in back office operations.

• Heavy workload

Labor shortages are often the cause of seemingly endless back office workloads. Until this problem is addressed, tasks will pile up and backlogs will get worse. In the end, this will greatly affect the quality of your business's performance.

• Complex tasks

In addition to back office workload, employee productivity is affected by the need to complete routine and repetitive tasks. Also, your employees may not always be able to complete complex tasks that they simply aren't qualified for.

• Lack of employees

Routine back office tasks require a thorough hiring process and ongoing employee training. Usually this task area has high employee turnover, which puts a lot of strain on neighboring departments.

• Outdated equipment and technology

Some tasks, such as accounting, require specialized software and services. It is important to keep the software up to date and update it in time, which also requires some budget. Also, employees need to be trained to work on certain software.

Why do companies outsource back office services?

Since back office functions do not require interaction with various clients, outsourcing services anywhere in the world is a great option. Outsourcing back office services is just as efficient as hiring in-house employees, but less expensive.

According to a study conducted by Deloitte, about 80% of companies around the world consider outsourcing the back office a positive experience. According to the same study, the internal teams of these companies were able to focus more on their core business. Outsourcing as a strategy has allowed them to address bandwidth issues and improve overall business efficiency.

Your time as a business owner is invaluable. Working with reliable outsourcing services will save you from having to personally check on your back office staff. Outsourcing your back office reduces labor costs and eliminates other costs such as allocating office space and purchasing new equipment. For example, instead of purchasing new devices for additional IT support, you can partner with an outsourcing company and pay a fixed operating cost. 34% of companies would rather outsource technical and IT support than spend money on equipment that is not available in-house.

Benefits of back office outsourcing services

Outsourcing back office operations is a great option for companies looking to increase profits and productivity. With the right approach, there are many benefits to utilizing back office outsourcing services. Here are a few of the most notable benefits:

1. Flexibility

A strong back office outsourcing provider will allow your company to grow in size, productivity and profits. The success of your business is directly proportional to the success of your outsourcing partner. In some cases, the outsourcing company also handles recruitment and training, providing better support to the hiring company.

2. Cost-effectiveness

Back office outsourcing is more cost-effective than supporting back office teams in-house. Outsourcing teams look after equipment, infrastructure, recruitment, training and other related costs and tasks.

3. Access to advanced technology and expertise

Another significant benefit of back office outsourcing is access to skilled professionals, industry professionals, advanced technology and top-notch services. 

4. Greater focus on core business activities

Outsourcing back office functions such as human resources, data entry, IT services, payroll, etc., relieves internal employees of a significant amount of work, resulting in increased productivity. The company can allocate these resources more efficiently, increasing sales and revenues.

5. Time zone differences

Some companies have customers all over the world. Companies in this category find that outsourcing some back office and customer service functions keeps the business running smoothly. Taking care of your customers is your responsibility and your core business model is to expand your presence in the international market. Offshore outsourcing firms come to your rescue when your company enters the overseas market.

6. Reduced corporate overheads

One of the most significant benefits of back office outsourcing is the reduction in corporate overheads. Companies can save 30% to 40% of their operating costs by not hiring additional employees and integrating infrastructure for back office functions. In addition, they have more time to devote to their core business activities.

7. Reinvest in your company

Budgeting will show the true value of outsourcing. Not having to spend resources on internal teams opens up many opportunities for reinvestment. 

8. Stay in control in a competitive marketplace 

The global market is becoming more and more competitive every day. This is primarily due to the importance of new technologies in today's ever-changing business environment. This encourages companies to cut costs everywhere and anywhere.

Most business owners do not want to give up control over these functions. However, you can retain control over how and when you outsource functions.

Benefits of back office inhouse services

But don't rush to outsource a large block of tasks and look for a contractor right away. Performing inhouse tasks has its advantages, too.

Even if you outsource back office functions to a company that can meet your needs, this option has its own challenges and disadvantages. Before making a decision, you need to understand how such an arrangement works and what are its advantages and disadvantages. The following are the strengths of the inhouse approach:

1. Concentration of attention 

You are always in control of the workflow, aware of all details and changes. There is no additional third party to communicate with, which can be problematic and miscommunicative.

2. Absence of language and cultural barriers

Many companies choose offshore companies over domestic ones for reasons such as availability in different time zones or cheap solutions. 

But if your business doesn't need to have a representative office or customer support center in another country, it may not make sense for you to face language or cultural barriers and add an unnecessary source of uncertainty to your business. Misunderstandings can lead to poor management, loss of customers and loss of brand trust.

3. Quality Control

When a company transfers its back-office functions to an outsourcing company, it immediately loses control of the quality assessment process. 

Checking whether an employee is performing their tasks diligently and adhering to agreed quality standards is easier when you see the entire process and have direct influence over it. Sometimes agencies fail to meet the expectations of the hiring company, resulting in lost productivity and a significant reduction in business.

4. Data Security

Keeping the company's internal operations secure and not sharing information about them with third parties can be a very serious point for not outsourcing.

Data security is one of the most critical concerns for companies outsourcing back-office functions because they no longer have full control over sensitive information. 

If you leave the processes inhouse, you will have a better opportunity to ensure that you have proper control over data security.

Now you know more about the strengths and weaknesses of inhouse and outsourcing approaches. Next, we'll look at a case study to see which approach has the greatest cost-effectiveness.

How much does it cost to outsource back office services?

When deciding to outsource back office services, companies often compare costs and services. Below is a comprehensive list of costs when deciding to outsource back office services.

• Total cost of salaries (not just base salaries)

When calculating the total salary of full-time employees, consider their base salary, bonuses, and training costs, social insurance and taxes.

• Office space 

This space can be used to store accounting data or maintain records. You can find much better uses for office space by analyzing how much space is taken up by hired internal employees and how much additional revenue can be generated by outsourcing it to outside contractors.

• Printing and office supplies

If the back office is run in-house, there will always be additional costs for stationery, postage and printing. Even though most tasks today are handled with a paperless system, stationery is still an expense for the company.

• Hardware and software costs

Most back office processes, mainly accounting, are done on a computer, often requiring specialized applications or software. Such accounting services come at a cost. As a company grows, more sophisticated software will be required to perform functions such as preparing VAT returns and maintaining year-end accounts. When calculating the total cost of computers, the additional costs of printers, scanners and photocopiers should also be considered. Not only do these infrastructures take up a lot of space in the office, but they are also expensive to maintain.

• Telephone costs

In-house back offices and outsourcing units may incur the same telephone costs as they have to communicate with clients, banks, finance companies, candidates, vendors, etc. If the back office operates in-house, this will be reflected in the cost of telephone bills.

• Additional personnel costs and contingencies

Personnel costs and contingencies are often overlooked when comparing costs and services. This is the case when internal back office staff are unavailable for whatever reason. This could be vacation, sickness, maternity or parental leave. It could also be due to power outages, bad weather or other factors. This will also have an impact on unexpected expenses. Outsourcing your back office will save you money by avoiding the above mentioned expenses.

• Consulting fees

Many companies turn to consultants and experts to provide some necessary services when in-house staff do not have the necessary expertise. This may include preparing tax returns and annual reports, product management and other accounting services. However, by outsourcing, you can save money on consultants by delegating the tasks that need to be done to a team of outsourcers.

Once you have calculated the costs and identified the services, you will have a better understanding of what you require and how much you can expect to spend. You should also consider dispersing the outsourcing team across multiple companies or consolidating them into one outsourcing firm that can handle all the tasks. Finally, it's important to understand exactly what you require from your outsourcing partner to avoid the same costs as before outsourcing.

We have calculated the approximate costs of outsourcing accounting services, taking into account European averages. Here's what we came up with:

As a result, keeping an inhouse specialist can cost you 6.5 times more than outsourcing tasks.

By delegating tasks, a small business can save more than 100,000 euros a year by investing it in company development, promotion or reinvesting in employees and technology.

You can compare the cost of outsource back office service providers here.

Conclusion

Outsourcing back office functions can be very beneficial to your company and its employees. You can expect improved processes, cost savings, access to new resources, and collaboration with experts. However, an outsourcing partnership requires careful consideration. As with any business relationship, there are advantages and disadvantages. The most important thing you can do is to stay on top of your work, monitor compliance, and plan for potential setbacks.

Back office outsourcing is an ongoing procedure. It requires constant supervision and performance monitoring. Maintain open communication channels and create a positive working atmosphere with your chosen outsourcing company. Working together and communicating effectively with your outsourcing provider will maximize efficiency, productivity, value for money and satisfaction.

Want to find a reliable company on back office outsourcing tasks? Use ReStaffy - we have a large database of service providers from around the world that you can trust.