The author has experience as a freelancer and a part of companies handling outsourcing projects.
Freelancer vs. company, which one is better for your investment and bottom line? Let's dive right in.
Imagine this. You need web design and development services to get the word out about your business and connect with customers. Developing in-house capabilities might not be feasible, as you'll be bleeding money on assembling a team, equipment, paraphernalia, and whatnot. Worst still, continuous investments in salaries, employee benefits, technology acquisition, maintenance, and more will eat into your profits in the long term.
That's where outsourcing kicks in, saving you the hassles and the splurge.
Outsourcing is precisely what it sounds like. You hire a company or a freelancer to perform a given business function per the contract's terms. The concept emerged in the industrial revolution era when manufacturers shifted manufacturing from Europe to countries with lower labor costs. The trend caught up in the 1970s and 1980s; by 2010, it became a norm. At least, the stats say so.
Organizations of all sizes collectively spent USD 700 billion on contracting out their less critical business functions to an external entity in 2022. By the end of 2023, it will escalate to a staggering USD 1.3 trillion. Maximum spending (USD 519 billion) is on IT outsourcing, followed by business process outsourcing (USD 212 billion). In 7 years from now, the global outsourcing industry will grow at a healthy rate of 9%.
While the world increasingly relies on outsourcing, does it work for your requirements? Well, in all likelihood, yes. Here's why.
With staffing, equipment, and other costs out of the way, it's easy to guess why. Over 70% of businesses think of outsourcing as a cost-cutting measure. Even the ongoing expenses on employee training, health-care plans, sick days, and other benefits are non-existent. Unsurprisingly, US-based businesses typically realize 70 to 90% of savings with overseas outsourcing.
Expect top service quality when you offload your business function to skilled people. The external expertise can complement your in-house processes and supply chain to give you a competitive edge. No wonder about 24% of businesses rely on outsourcing for efficiency reasons.
With professionals taking care of your less critical business activities, you have ample time to focus on streamlining day-to-day operations, customer acquisitions, and other critical business lines. So, your business is in for aggressive growth.
From accounting to IT, feel free to contract out any business process that involves hefty spending when done in-house. At 37%, accounting is the most contracted-out activity, followed by IT at 35%, digital marketing at 34%, and customer support at 24%.
Your association with the external entity could be short-term or long-term, depending on your needs. The contracts are straightforward, meaning no onerous obligations to deal with. Also, you can scale up or scale down your freelancing staff according to your changing needs. How's that for flexibility?
If the company you outsource to is in a different time zone, the advantage of 24/7 business operations comes by default. Since they work while you sleep, the work is done earlier than you could pull it off in-house. That's one way to stay ahead of the game.
While the importance of outsourcing can't be overstated, the freelancer vs. company debate kicks in to haunt you. A freelancer is a skilled professional working independently, whereas a company is a group of professionals that pulls together. Choosing who to choose is a tricky undertaking, given that both have advantages and trade-offs.
Let's pit them against each other on key parameters that drive outsourcing decisions. The idea is to help you make informed decisions.
Cost-effectiveness is the name of the game. While savings are inherent in outsourcing, you might save additionally if you choose well.
Freelancer: Freelancers usually work from home. You typically pay them on a per-hour or per-project basis, which is significantly less than what you pay your full-time in-house employees. With infrastructural costs and other overheads out of the equation, freelancers can charge less than a company for the same job.
Company: A company, on the other hand, requires spending on office spaces, staffing, and more. It has to keep its markups high to bear the overheads and turn a profit. So, don't be surprised if you spend more on roping in a company than a freelancer.
Our Verdict: Both help you save on labor costs, but freelancers are an economical option, especially for those one-off jobs. However, proceed with caution. While pricing is the key, other factors like work quality, customer support, and more also matter.
How productive your outsourcing partner is? That's a key consideration. The last thing on your mind would be to put up with a bottleneck that slows down or even jeopardizes your processes.
Freelancers: They often follow personalized working schedules. That makes them more productive than an average company employee. Plus, they earn on a per-hour basis. So, the possibility of earning more keeps them motivated and productive. However, depending on an independent contractor can backfire because they can fall sick or have personal obligations. In that case, your project suffers.
Company: While an average company employee lags behind a freelancer in productivity, the company makes up for it with a team. It can delegate your task to another employee when the designated employee calls in sick. Also, the agencies have better infrastructure and more resources than a freelancer. That allows them to stay productive in a deadline-driven scenario.
Our Verdict: Not all freelancers are as productive as you would like them to be. Some even take up freelance assignments as a side hustle. Conversely, any company worth its salt has a work culture that promotes and rewards productivity. Add to it their ability to fill in for the absent employee handling your job; agencies tend to be more productive overall.
Trust is the essence of the outsourcing business model, mainly when the outsourcer and its outsourcing partner operate from different countries. The risks are always there whether you go in for a freelancer or a company.
Freelancer: Sadly, the freelancer market is largely unregulated. Many companies don't even bother to enter formal Non-Disclosure Agreements with freelancers. The result? You can never be confident sharing your confidential data with freelancers. The risk of it being misused runs deep. You might end up contracting out to a freelancer who might not even bother to respond to your calls, texts, and emails.
Company: Though the presence of black sheep cannot be ruled out, most companies are reliable. They operate with a physical setup and proper licenses and comply with all the legal requirements and industry best practices. Companies use encryption technologies and other measures to protect your data from unauthorized access. Any reliable company will insist on signing NDAs that deter misuse of your confidential information.
Our Verdict: Companies are hands down the more reliable option. You can sue them for breach of agreements. The fear of losing credibility also keeps them in line. However, this is not the case with freelancers. They are impossible to track because you know little about their whereabouts and credentials. Also, vetting a company is more accessible than vetting a freelancer.
Ongoing customer support makes you feel cared for and ensures smooth communication even after the job is done. Whether it's getting rid of those last-minute glitches or some change in strategy, efficient customer service will help you convey it to your outsourcing partner.
Freelancers: They are often lousy or simply too preoccupied to provide ongoing customer support. The lack of proper infrastructure also restricts freelancers' ability to stay available to clients, especially after completing the project.
Company: Companies often deploy a point of contact to answer your queries, take your feedback, and keep you updated on the project's progress. They usually make the most of different touchpoints to stay in constant touch with clients.
Our Verdict: The latter has the edge when it's an individual versus a company. Instead, companies are hard-pressed to deliver efficient customer support to stay competitive. On the other hand, even highly motivated freelancers may fail to live up to your expectations.
A haphazardly done job reflects poorly on your business. Compromising quality for trivial savings is a false economy, as you'll spend money and time on rectifying and improving the work quality. So, it pays to invest in an outsourcing partner that shares your passion for quality.
Freelancer: Let's face it. For many, freelancing is a side hustle. And some take it up because they are unfit to serve as a part of a company. In either case, the quality of work is compromised. Only a fraction of the freelance populace has what it takes to meet your specifications and expectations.
Company: Any credible company would be interested in earning repeat business. One way to achieve it is to deliver quality, day after day. However, quality isn't just about intention but resources as well. In an agency, many people collaborate to deliver quality in low lead times. Measures are also in place to address your quality concerns.
Our Verdict: On this front, too, the companies outperform freelancers. While freelancers are more inclined to get the work done quickly, companies usually balance quality and speed.
Dealing with a rigid outsourcing partner is nothing short of a nightmare. Such partners neither align with your work culture or bottom line nor accommodate special requests. That calls for determining who is more flexible, freelancer vs. company.
Freelancer: Whether setting terms and conditions or chalking out work schedules, you are more likely to have your way with freelancers. They are often willing to align their work hours to your needs. Early mornings, after-hours, or late nights, they have you covered.
Company: Agencies operate with proper processes, meaning the project will progress from one stage to the other in a systematic fashion. And, they are less likely to tinker with their processes. That leaves less room for flexible work schedules. Plus, you might need to negotiate hard to make companies agree to specific terms and conditions.
Our Verdict: With not many onerous legal requirements involved, it's easy to negotiate with freelancers. But will they honor their commitments? Well, your guess is as good as mine.
Can your outsourcing partner scale up or down to your changing business needs? Well, it's wise to look into this aspect before signing in. Mind you, your long-term growth and profitability depend on how well the outsourcing partner can cope with the change in your requirements.
Freelancer: Since a freelancer operates independently, there's a limit to his/her output. In an emergency, deadline-driven scenario, you must rope several freelancers into quickening the output. That's convenient. But you wouldn't like to go through the ordeal of finding several freelancers at the eleventh hour.
Company: A company is more resourceful than an individual. It can adjust the number of employees working on a project to suit your needs. More deployments are possible as your business grows over time.
Our Verdict: Scalability is possible with freelancers if you don't mind going through the hassle of hiring and coordinating many freelancers working in different countries and time zones. An established company can adjust to your requirements, making it more scalable.
Outsourcing makes sense in a globalized, digitally connected world. You can do the job without dealing with the investments and hassles of hiring a staff. It's a proven cost-cutting measure that works well for small and big businesses across geographies and industries. However, even before you think of outsourcing a particular activity or department, dealing with the freelancer vs. company dilemma is essential.
While freelancers are cost-effective, flexible to work with, and more productive in certain aspects, a company tends to be way more reliable, scalable, and supportive. So, it's your call. Take it upon factoring in your project requirements and other factors. And don't forget to vet the credentials, skills, and reputation of the freelancer or company you wish to hire.
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