Taking It Outside

Outsourcing can be a great time saver–but mind the costs

After launching “The Little Coupon Book” franchise throughout metropolitan Atlanta, C. Michael Greer Jr. set out marketing his venture.

Greer, whose company publishes a monthly business-to-business coupon book supported by advertising, says it took 10 days to get the books out. It was clear that working alone was becoming overwhelming. “You have no idea what 50,000 copies of something looks like until you try to shove it into a car,” says Greer, who by June 2001 was more interested in signing up new advertisers than spending close to a week delivering publications.

To solve the problem, Greer found Dynamex, a national courier service, which charges him $135 monthly fee to drop-ship the 50,000 coupon books to four outsourced delivery personnel. The combination of the courier and finding people willing to delivery the books was a godsend for Greer, whose company posted $150,000 in sales last year.

Greer says outsourcing freed him up to spend most of his time in front of customers, selling his company’s services. “I feel pretty good about the outsourcing partners that I’ve have surrounded myself with,” says Greer. He expects the company to post $200,000 in sales for 2003. “My company is young, but it’s encouraging to see growth already.”

Small business outsourcing is a growing trend, according to The Outsourcing Institute (OI), a Jericho, New York-based professional organization. In its fifth annual Outsourcing Index, OI reported that 60% of companies with fewer than 500 employees expect to spend $1 million to $5 million on outsourcing in 2003. Another 20% of companies have budgeted up to $1 million for outsourcing.

More than a market equalizer, OI says outsourcing is a “key growth enabler for small to medium-size firms” because it offers economies of scale, which results in more predictable costs, shared or reduced risk, as well as access to expertise and infrastructure small businesses typically cannot afford.

Debra A. Dinnocenzo, president at Wexford, Pennsylvania-based consulting and training firm ALLearnatives, says small business outsourcing has been on the rise for about 10 years. Best functions to outsource, she adds, are a company’s non-specialty areas that consume significant time and energy, such as technology support, payroll/human resources, and financial and legal services.

Dinnocenzo recommends the following formula if you’re unsure whether outsourcing is cost-justified: annual salary + commission + bonuses + benefits all divided by 2,040 (the average number of working hours in a year). If the costs associated with outsourcing exceed your total, it’s not cost-effective.

Experts recommend the following books to help with the outsourcing process: Turning Lead into Gold: The Demystification of Outsourcing by Peter Bendor-Samuel (Executive Excellence; $12.75) and Strategic Outsourcing: A Structured Approach to Outsourcing Decisions and Initiatives by Maurice F. Greaver II (Amacom; $42.95).

The keys to success, says Rich Sloan, co-host of the nationally syndicated StartupNation radio program in Birmingham, Michigan, are to manage the details, establish a relationship with your vendor, define your expectations, understand the fees that are involved, and, most importantly, get references from other customers.

Once these bases are covered, says Lynn A. Robinson, of Intuitive Consulting, outsourcing one

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