The Real Cost Between Outsourcing IT vs In-House: A Quick Comparison
Published on: May 12, 2021
Last updated: October 23, 2022 Read in fullscreen view
Last updated: October 23, 2022 Read in fullscreen view
Recommended for you
- 01 Oct 2020
Fail fast, learn faster with Agile methodology - 14 Oct 2021 Advantages and Disadvantages of Time and Material Contract (T&M)
- 08 Oct 2022 KPI - The New Leadership
- 15 Oct 2022 Project-based team model for one-off and pilot software development projects
- 19 Mar 2021 Selective Outsourcing of IT Functions - a new trend in business outsourcing
Technology is expensive and in this rapidly developing business world, success won’t happen without it. When it comes to managing your IT, making the right decision between directly hiring and outsourcing can be challenging especially for small- to medium-sized companies.
Let’s take a look at the hidden cost associated with hiring in-house and the cost-effective benefit of outsourcing IT services.
On this basis, let’s compare the pair.
| Category | In-house agency | Outsourced agency |
|---|---|---|
| Recruitment | Assuming on day one you will need to recruit the entire agency resource, there are significant costs associated with this as an initial one-off cost. However, assuming an industry average of a 25% staff churn rate, this would be considerably reduced in the next and subsequent years, but will still be an ongoing cost to the business with a need to replace the entire agency every four years. | The outsourced agency exists, but the industry does have a reasonable churn rate and therefore recruitment costs are built into the overhead for the agency used to calculate the retainer. This will often contribute less than 10% to the overhead. |
| Cost | Assuming like-for-like between the two, this includes mandatory superannuation (or pension) contributions as well as payroll tax and other costs associated with employment. | Of course agencies are required to pay mandatory superannuation (or pension) contributions, but depending on the payroll size, some agencies are exempt from additional charges such as payroll tax and other fees. But these fees are also included in the agency overhead fees. |
| Real estate and utilities | The additional employees will require space to work and therefore there will be the cost of providing this real estate and the associated utility costs such as power, heating, air conditioning, internet, and so on. This would be based on the company's average cost per employee. | These are included in the agency overhead fees. These often contribute 30% to 45% of the overhead. |
| Plant and equipment | Depending on the services provided by the in-house agency, this would include, at a minimum, computers, servers and graphic printers. But it may also include video shooting and editing, audio recording and mixing and more. This equipment is usually leased for tax purposes and to overcome capital-expenditure considerations. | All requirements are supplied under the overhead fees, unless specifically charged out on an agreed rate card. This will contribute approximately 30% of the overhead. |
| Software licences and subscriptions | This is a particularly onerous cost for in-house media agencies, with the significant cost of industry research subscriptions and software licences. But it applies to content to a lesser extent. And without multiple offices or multiple clients it becomes a significant cost to carry. | Media agencies will often have significant costs tied up in industry research subscriptions and software licences required to plan and buy media. But most will amortise this cost across clients in the overhead or negotiate reduced rates across multiple offices. |
| Holidays and sick leave | The in-house agency will need to manage the resources within the workload expectations during times when employees will be taking annual leave and extended sick leave or parental leave. This contributes approximately 14% to the salary costs. The more expensive cost of short-term freelancers will need to be factored into the annual cost. | The agency will draw on the broader agency employee base to make up for resources shortfalls due to leave. If the agency does require additional freelance staff, then the cost of these is usually absorbed within the agreed retainer fee. |
| Professional development and training | This is particularly important for staff retention and development. It is also important in key technical skills such as programmatic media, data analytics and marketing automation and therefore would need to be budgeted into the ongoing cost. | Outsourced agencies offer this as a way to retain important key staff and to keep them up-to-date with industry developments. The cost is covered by the overhead cost. This will contribute less than 10% of the overhead. |
| Employee underutilisation | With a fixed number of employees, underutilisation is a hidden cost in situations where workloads decrease either seasonally or due to unforeseen economic impacts. | The agency will typically run under the expected resource requirement, even with a retainer, and deploy the resources to another paying account if the workload drops, either expectedly or not. |
| Additional management cost | Additional employees will add additional costs outside the in-house agency to the management areas across the business including human resources, finance, legal, marketing and management in the day-to-day operations. | These are included in the agency overhead fees. These often contribute approximately 20% of the overhead. |
| Redundancy | If it is decided either through a change of leadership or perceived underperformance that the in-house agency be terminated, as has happened with companies such as Intel, then the cost of redundancy needs to be factored in as a one-off cost. | When you terminate an outsourced agency, the agency will minimise redundancies and cover the cost of essential redundancies within their existing fee. |
Should Your Company Hire Directly or Outsource IT Services?
Every company has a different approach and requirements, and you will have to determine the important factors you value the most when running your business successfully. However, for small- to medium-sized businesses, outsourcing will make more financial sense.
Aside from reducing the hidden cost of recruitment or turnovers, outsourcing IT services can also take advantage of controlling costly downtime linked to an employee whose expertise isn’t always needed. Outsourcing with Uniserve has many advantages, helping your business allocate the right resources in the best possible ways.
{content}
Explore more on these topics
Guest Blogging: The Definitive Guide
