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Updated Nov 20, 2023

In-House vs. Outsourcing: How to Decide What’s Right for Your Business

Learn what to consider to make the best hiring decision for your company's unique needs.

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Bennett Conlin, Business Ownership Insider and Senior Writer
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When it comes to developing a successful business operation, hiring the right team is critical. To expand and grow your company, you need top-notch talent. Sometimes, this means finding someone to permanently join your team and help your organization from the inside. Sometimes, however, it means working with an external party who assists your company from the outside. Thus, small business owners often find themselves wondering, “Should I outsource or hire?” 

The answer isn’t as cut-and-dried as you might think, but there are a few key considerations that can help when determining whether to hire someone full time or use a third-party service provider, consultant or freelancer. Read on for a guide to in-house hiring versus outsourcing so you can make an educated decision on when to outsource and when to keep responsibilities within your team. 

Should my business outsource or hire in-house? 

The answer to whether it’s a better choice to outsource a role or hire someone to fulfill the position in-house usually depends on the scenario. Factors to consider include the size of your business, your team’s budget and what area of expertise is needed. 

Your business should consider outsourcing in the following situations. 

  • You need short-term project assistance. If you need to cover a skills gap for only one project, outsourcing could be the smartest choice because the partnership can be temporary. For instance, if your organization is overhauling its website but has no similar needs, consider outsourcing tasks such as graphic design instead of adding a full-time designer to your team.
  • You want to increase manufacturing capabilities. Growing businesses that are looking to scale production can outsource needs like assembly and materials. Let’s say, for example, a cookie company experiences a sudden increase in orders. It can outsource production or packaging to a large-scale baking manufacturer to meet demand.
  • You’d like to supplement operational needs. As your business grows, so does the need for help with certain day-to-day personnel processes. If your company isn’t ready to hire a full HR team or needs minor legal compliance assistance, outsourcing human resources functions might make more sense. 
TipTip
Many of the best HR outsourcing companies can handle HR duties for your organization as it grows. One of the top options for smaller businesses is Bambee. Read our detailed Bambee review to find out why.

On the other hand, hiring in-house might be wiser if you need an employee for any of the following reasons:

  • The open role is central to your organization’s mission. If you need a subject matter expert in your core area of business, in-house is usually the smarter way to go. Ideally, this person will be someone who brings a fresh perspective and level of expertise that supports company growth.
  • The job involves confidential information. In-house hiring offers greater oversight and security, which is critical if the person is working with sensitive information. For example, a short-term contract hire shouldn’t have access to information that could give your competitors an edge. You’ll want to limit the sharing of intellectual property information to your full-time team.
  • You need someone who’s fully committed to the organization. An in-house hire is likely to be more invested in your company’s long-term success. If you’re looking for a candidate who’s in it for the long haul and a cultural fit, you’ll have better luck with a full-time employee as opposed to a third-party provider who is trying to meet the needs of many clients.

How do you balance outsourcing and using in-house employees? 

Some new businesses fall victim to the idea that outsourcing tasks means those duties will be done more effectively at a lower cost by someone outside your organization. This can be true, but it’s not always the case. We spoke to a few experts about how they’ve found success balancing in-house employees and outsourcing.

1. Keep control of essential business functions.

Keep tasks related to your competitive advantage in-house. Otherwise, your business may become alarmingly reliant on outsourced help, which can rarely be counted on as much as in-house staff.

“You don’t want to outsource anything that is part of your core business,” said Tim Wenhold, chief operating officer of Power Home Remodeling.

A former consultant for the company, Wenhold stressed the importance of taking a deep look at what aspects of the business are actually core areas. While Power Home Remodeling isn’t a tech company, technology is critical to its success, Wenhold said. For this reason, he didn’t outsource the company’s IT tasks, even though other businesses frequently outsource these responsibilities. Instead, he elected to build the company’s internal technology department to ensure those working on mission-critical technological tasks were in-house employees.

Wenhold’s point is an important one for small and growing businesses. It may seem simple, but it’s critical to never outsource something related to a company’s competitive advantage. This can be detrimental to your company’s culture and overall health.

“When you outsource too much of the core technology, what you end up with is a culture of maintenance people – people that are uninspired, that are just keeping things running,” Wenhold said. “They’re paid to keep the lights on, if you will.”

Giving your full-time employees tasks that are vital to the company’s success is generally a good way to keep them engaged and motivated. Employees tend to be more driven when they’re working on tasks they find interesting. If you give team members interesting work and show them how their work helps the company, motivation should increase.

Motivating employees and offering exciting work may also help bring in talent. With recruiting being a major challenge for small businesses, it’s a good idea to keep the hardest and most rewarding tasks in-house.

“By keeping the challenging things in-house, we’ve been able to attract people from around the world,” Wenhold said. 

2. Consider outsourcing tasks when you lack expertise.

Wenhold used the hypothetical example of a small business selling oranges to illustrate the potential benefits of outsourcing: If the employees at this orange-selling business aren’t experts in technology, but the company has a few important but not critical technological tasks, it’s likely a smart decision to outsource those duties. A small business focused on selling oranges doesn’t necessarily need to personally run its social media accounts, and hiring an outside social media person to do so may boost sales. [Check out our small business guide to social media.] 

Similarly, if you don’t have someone on your team with knowledge of accounting standards, it makes sense to hire an outside party, especially when you’re a small business and employing a full-time accountant might be a waste of resources. If you lack knowledge in an area that isn’t crucial to your business’s competitive advantage, outsourcing can be a cheap and easy solution. 

Use outsourcing as a way to fill knowledge gaps rather than outsourcing tasks that align with your company’s area of expertise. This may seem obvious, but small businesses make this mistake daily. It’s best to hire outside parties to handle tasks that aren’t in your wheelhouse. Mundane tasks are perfect for outsourcing too.

You should also consider time constraints. Customer service can be a time-consuming endeavor; using an outsourced call center or live chat solution can save your business time while still tending to customer needs. It’s important to recognize the areas of your business where outsourcing can help.

Did You Know?Did you know
High-quality contact center software can make it easier to manage customer service operations in-house. Without fully outsourcing this area of your business, some providers offer extensive assistance that can be helpful when dealing with tricky situations.

3. Evaluate your unique needs and consider the risks.

When deciding whether to hire in-house staff or outsource, you need to look at your unique business needs. Don’t get too caught up in comparisons to other companies when deciding what activities your business should and shouldn’t outsource. A business down the street might have a founder with a background in accounting, even though it’s a home design firm. That business might not outsource accounting because of its founder’s expertise, but your organization might have a deficiency in accounting knowledge and need to outsource that responsibility. It differs for every company. 

It’s also essential to contemplate the drawbacks and benefits of both outsourcing and hiring full-time employees.

“You have more control over full-time employees than contractors and freelancers because they’re committed primarily to you and your company,” said Hunter Hoffmann, chief marketing officer at AmTrust Financial Services. “You’re able to clearly set priorities, establish acceptable workplace behavior and, hopefully, get them to commit to not only their success but the company’s as well.”

Hoffmann continued, “With freelancers, you could end up competing for their time with other clients, and the work effort contractors put in can often wane toward the end of their term if they know they’re not going to be extended.”

While outsourcing can be risky, hiring full-time employees doesn’t always guarantee success either. The biggest issue is that you may not fully utilize full-time workers, making it harder to justify the expense of employing them.

“An employee is a fixed cost that can be a big challenge for a small business with fluctuating revenues,” he said. “Businesses can manage their expenses in close to real time with contractors and freelancers to adjust to demand in a way they can’t with full-time employees.”

4. Weigh long-term growth plans with current demands.

It’s crucial to consider the big picture when assessing your staffing needs. Are you running a growing organization that needs to cut expenses in the short term so you can succeed in the long run? If you’ve crunched the numbers and outsourcing is the most cost-effective solution for certain tasks, it’s worth enlisting outside help. Additionally, if there’s a shortage of experts in an area you need immediate help with, outsourcing can address your pressing needs. 

However, if the job function requires extensive training and insight into your company’s processes and procedures, an in-house hire might be the best choice. Even if onboarding new hires takes more time, an in-house employee is likely to develop valuable company expertise and a stronger return on investment (ROI). Ask yourself which arrangement is best suited to meet your immediate needs and your long-term company goals.

In-house hiring vs. outsourcing isn’t one-size-fits-all

Determining the right hiring decision for your business comes down to a thorough evaluation of your needs. Identify the mundane tasks that don’t play a role in your competitive advantage, and start your outsourcing efforts with those responsibilities. If the arrangement isn’t successful, you can always change course.

Your hiring choices should be all about what’s best for your specific business. You may be hiring for a long-term business reason, or you may just need to outsource a role for a season. Either way, the circumstances will be just as unique as your organization. As long as you’re thoughtful in your consideration, have confidence in whichever decision you make. 

Natalie Hamingson and Brittney Morgan contributed to this article. Source interviews were conducted for a previous version of this article. 

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Bennett Conlin, Business Ownership Insider and Senior Writer
Bennett Conlin's passion for business and entrepreneurship is evident everywhere, from his bachelor's degree in business administration and management from James Madison University to his work with small business development centers to the founding of his own small multimedia company. Conlin has provided consultative services for small businesses looking for social media and website assistance, studied the cybersecurity landscape and expertly guided entrepreneurs toward the wide range of products and services needed for everyday operations. In recent years, Conlin has focused on the intersection of business, finance and sports with insights on the casino industry and coverage of sports betting news and legislation.
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