Control Consulting Costs and Drive Growth Through Strategic Outsourcing

This is the third article in the Business Frameworks Series.

The first article in the series is The Five Business Basics Every Entrepreneur Must Master (http://wisepreneurs.com.au/five-business-basics-every-entrepreneur-must-master)

and the second, Maximising Revenue (http://wisepreneurs.com.au/maximising-revenue)

The Make vs. Buy Decision: A Key to Consultant's Growth

As a self-employed consultant or freelancer, you have choices about how to operate your business efficiently. You can do all the work, partner with others, outsource some tasks, or use software and AI to assist you.

Deciding whether to "make" (do it internally) or "buy" (outsource) various aspects of your business can help maximise your revenue. Regularly assessing your "make versus buy," options helps keep your costs down and revenue up over time.

Understanding Your Costs: The Five-Line Model

The five-line model provides us with a framework to make decisions about the financial side of a business.

I will be focused on the second cost, the make-or-buy decision, also known as the Cost of Goods Sold (COG).

The "make vs buy" decision comes up routinely and requires weighing time, costs and control.

The model includes:

  • Revenue from product/service sales (which must exceed costs)
  • Cost to Make or Buy the product/service (your time, including materials and contractors—also known as the Cost of Goods Sold)
  • Cost of Selling (marketing, advertising and selling costs)
  • Cost of Running the Business (rent, insurance, utilities, subscriptions and administration)
  • Profit (Revenue less costs)
  • Understanding Your Costs

To determine whether making or buying is cost-effective, you need a clearer picture of your business costs. The five-line model provides a framework for thinking about your expenses. You'll better understand the "break-even" points for outsourcing vs. doing work yourself.

Pros and Cons: Insourcing vs. Outsourcing

There are pros and cons to insourcing (doing work internally) and outsourcing. Outsourcing optimises cost and flexibility, while insourcing maximises control.

Three Key Factors for Make-or-Buy Decisions

When deciding whether to make or buy a specific task, assess the following:

  1. Time—How much of your own time will it take?
  2. Cost—Which option has the lowest net cost after matching your preferred hourly rate?
  3. Control—How critical is close oversight and customisation for this work?

Assessing Time, Cost, and Control

Consultants and freelancers commonly outsource tasks to save time for higher-value work and lower overall costs.

The specific tasks that individuals and businesses choose to outsource depend on their unique needs, priorities, available resources and core competencies.

Outsourcing non-critical tasks can create capacity for more impactful work that draws on your expertise—helping maximise your productivity and profit as an independent consultant or freelancer.

Balance scale illustrating time versus cost in consulting decisions

Optimizing Your Outsourcing Strategy

With discipline around costs, clarity on your value proposition and an understanding of trade-offs, you'll make wiser choices that help maximise your revenue and positively impact you as a successful consultant.

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Regular Reassessment for Evolving Business Needs

Your optimal solutions will evolve as you refine costs, sharpen your niche and build your business. Outsourcing non-essential tasks can save time and energy for high-value work that only you can deliver as an expert consultant. Having a more accurate way to determine your costs to complete the project helps you determine the price range you will charge.

The Hybrid Model: Blending Insourcing with Outsourcing

Regular reviews of your "make vs buy" decisions help keep your costs in check, which flow through to profit. Combining options - outsourcing some tasks while collaborating with others - is often the most profitable hybrid model.

reelancer in home office utilizing outsourcing for efficiency

Conclusion: Making Smarter Outsourcing Choices

  • Use the five-line model to assess your business costs and help you to determine your make vs. buy decisions. Having a clear picture of costs is essential.
  • Consider time, cost, and control when deciding whether to make (do internally) or buy (outsource) specific tasks. Outsource work that takes too much time or costs more than your hourly rate while completing tasks requiring close oversight.
  • Both insourcing and outsourcing have pros and cons around cost, control, and flexibility. Finding the optimal hybrid approach for your business is vital.
  • Actively reassess your make vs. buy decisions over time as your business evolves. What worked when you started may change as you scale and refine your offerings.
  • Outsourcing non-critical tasks can save time and energy for high-value work showcasing your expertise. However, maintaining some control over strategic tasks is often essential.
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