Over the years, I have worked for, and heard of, companies that hire people to complete a project in order to just let them go the following year. This process is very heartbreaking for both the person being fired but also kills the company’s morale.
This is why I recommend people to outsource any work that you feel might be temporary or the position might be killed off in less than five years.
Some people feel differently when they hear the cost of hiring an agency versus a person; however, they forget that hiring an individual actually costs more than one would think.
A smaller agency costing $100 per hour, costs exactly that.
$100 * (hours worked) = $total cost
Hiring an individual employee has hidden costs that aren’t really thought about. For example, say this person is paid $50 per hour.
$50 * (hours worked) = $subtotal
In reality it is more like.
(($50 * (hours worked)) + (vacation weeks * 40 * $50) * % for taxes + subsidized health insurance + subsidized dental insurance + company functions + (coffee, snacks, lunches etc) = $total cost
Now put this into real perspective. Let’s say that you are needing a custom SaaS application built that has an estimated timeline of 6 months to build.
Agency cost:
$100 * 1040 hours = $208,000
Employee(s) cost:
$104,000 * 20% + $6,000 + $480 + $600 + $200 = $132,080
Well..that’s less but then we forget that an agency had thrown more than one person at the project to get it done in six months. So, let’s estimate that there are four people needed. The agency was hourly based on the project timeline so cost does not change. As for hiring, assuming that you keep them for a year, $132,080 * 4 = $528,320.
Wow. That’s a big savings.
This is due to having to keep the employees around after the project is actually finalized. Why would you keep them around? Maintenance of course. Now that this product has been build, someone has to work on bugs and new features. The agency can be paid hourly (or fixed) based on the needs from release date forward whereas an employee has to be continually paid whether there is work or not.
What other reasons can you think of that would benefit a company to outsource rather than hire?
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