Sub-Contracting or In-House, which is best?

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More often than not, an entrepreneur will consider subcontracting another company/individual for services or products that they cannot do/make. Services like marketing, accounting, component design, qualitative testing, online purchase acquisition etc. all come under services that are most likely required for every business. However, not every entrepreneur knows how to implement them successfully. Entrepreneurs rarely have the time, knowledge or experience to build their own websites for example. Paying an experienced company ensures you get a high-quality website fast. As a website if an extension of your company, having a professional website is very important as it projects an image of the company as professional.  Although you could save some money building it yourself, unless you are an experienced website builder, you are unlikely to get the same result and you will likely spend a long time to get an inferior result. So when should you subcontract and when should you attempt to implement something yourself?

Subcontracting has a number of benefits. One in particular is the experience of the subcontracting company (something you should research). Typically experience comes with learning from mistakes. When you pay a higher price for a service, you are paying to avoid those mistakes yourself. However, if you are willing to make mistakes, learn from them and have the time to do trial and error, in-house can be a viable option for you.

In-house

The major factor here is time. Is this something you need done once or is this a continuous requirement? If you can’t wait for the service or product, or, if you only need this only once or twice, subcontracting typically makes sense. If this is something you will rely on constantly throughout the life of your business, in many cases it is worthwhile attempting to generate this service in-house. To determine if in-house is the right option for you, consider the following questions:

·         Is there an initial startup capital available for purchasing equipment and/or hiring labour available to you?

·         Will the equipment & labour (if any) pay for itself in savings over sub-contracting?

·         When considering initial costs of materials and equipment plus the labour and benefits of an employee, are you saving any money using in-house services? If so, is the added stress of management worth it?

·         Is there a benefit to having on-site resources such as face-to-face conversations, lack of transport costs etc.?

·         When it comes to products/services, is there intellectual property value that is protected using in-house over sub-contracting?

·         Is the labour force available locally and are they highly specialized? What is the likelihood of retention?

Subcontracting

There are of course, many occasions when out-sourcing is a better option for a business. Here are some factors to consider:

·         When the product/service is only required for a limited time or one-off production

·         When the product/service is so specialized, labour rates are too high for long term hiring

·         When availability of subcontractors is plentiful, competition is high driving lower prices and leaving you with other options if the product/service is not up to par

·         Does the subcontractor need to be local or can they provide services from online/remote locations?

·         Is the company reputable and likely to provide intellectual property security?

·         Is there a communication gap or a delivery restriction?

·         Can the company handle the demand and if so, guarantee supply?

As with most aspects of business management, the real answer is unique to the individual business. The major factors are the frequency the service will be required and the cost, both initial and long-term. It is quite simple math to determine if setting up in-house is a benefit. I suggest you consider the factors laid out above and consider how each point will impact you and your business. As I’ve said many times, an entrepreneur does not need to be an expert in every area of their business, that’s what sub-contracting is all about. However, if you can supply yourself with resources you need at a lower cost, you should definitely explore that option. If you need any assistance in doing so, contact David D’Silva and find out if sub-contracting is good for your business.