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 753 - 14 Oct 2021 Advantages and Disadvantages of Time and Material Contract (T&M) 635
- 15 Oct 2022 Project-based team model for one-off and pilot software development projects 612
- 18 Oct 2020 How to use the "Knowns" and "Unknowns" technique to manage assumptions 592
- 19 Oct 2021 Is gold plating good or bad in project management? 576
- 08 Oct 2022 KPI - The New Leadership 485
- 19 Mar 2021 Selective Outsourcing of IT Functions - a new trend in business outsourcing 417
- 16 Dec 2021 Why outsource Python development of your project? 353
- 10 May 2021 What are things you should look for in a good IT outsourcing company? 341
- 14 Dec 2021 The Top 10 Problems with Outsourcing Implementation and How to Solve Them 336
- 06 Oct 2021 Intellectual property issues with outsourcing software development 326
- 23 Sep 2021 INFOGRAPHIC: Top 9 Software Outsourcing Mistakes 324
- 03 Oct 2020 Outsourcing Your MVP Development - Streamlined Solutions for future 308
- 08 Feb 2022 Software Development: Fixed Cost or Opportunity Cost? 307
- 15 Aug 2021 TIGO Rate Formula - Things the partners should know 306
- 11 Jan 2024 What are the Benefits and Limitations of Augmented Intelligence? 295
- 19 Oct 2020 The hidden costs of outsourcing software development 294
- 24 Nov 2021 What is the Actual Cost of Hiring Cheap Developers? 291
- 10 Dec 2023 Pain points of User Acceptance Testing (UAT) 289
- 28 Dec 2021 8 types of pricing models in software development outsourcing 286
- 01 Sep 2019 Outsourcing Software To Vietnam: Facts, benefits and limitations 278
- 22 Mar 2022 8 Mistakes Marketing Agencies or Consulting Firms Make When Outsourcing Web Development 273
- 19 Apr 2021 7 Most Common Time-Wasters For Software Development 263
- 13 Dec 2020 Move fast, fail fast, fail-safe 253
- 02 Mar 2021 Estimate the Cost of Software Development 250
- 31 Dec 2021 Outsourcing Software Development to mitigate the impact of COVID-19 248
- 01 Jan 2023 4 New IT Outsourcing Pricing Models to consider in 2023 248
- 31 Oct 2021 Tips to Fail Fast With Outsourcing 245
- 25 Nov 2021 Low-Cost Software Development: Buy Nice or Buy Twice? 243
- 03 Nov 2021 7 phases of Odoo Implementation and Development: Can they be outsourced? 239
- 01 Mar 2022 Top 5 reasons why outsourcing to Vietnam is a smart move 232
- 05 Jan 2022 What Outsourcing Engagement Model is Right For You? 232
- 06 Feb 2021 Why fail fast and learn fast? 232
- 04 Jan 2021 VIETNAM AS A BIG ATTRACTIVE DESTINATION IN THE FIELD OF OUTSOURCING 221
- 12 Jan 2023 Top 10 Trustworthy IT Outsourcing Companies in Vietnam 219
- 12 Oct 2021 Vietnam outsourcing path - the silk road connecting ASEAN with the developed countries (EU, US, Japan...) 219
- 21 Oct 2021 Advantages and Disadvantages of IT Outsourcing 214
- 10 May 2021 Project Audit and Second Opinion Services 205
- 01 Apr 2021 IT Outsourcing to vietnam: Why It Is A Good Choice? 202
- 18 Aug 2022 What are the consequences of poor requirements with software development projects? 201
- 06 Nov 2019 How to Access Software Project Size? 200
- 03 Nov 2022 Top questions and answers you must know before ask for software outsourcing 195
- 01 Jan 2023 Software Development Outsourcing Trends to Watch Out for in 2023 189
- 08 Oct 2024 Vietnam: The Rising Star in Global Outsourcing – Trends and Costs for 2025 184
- 16 Mar 2021 Outsource Data Engineering Services - TIGO Streamlined Solutions 177
- 10 Nov 2022 Poor Code Indicators and How to Improve Your Code? 177
- 11 Mar 2023 Common Pain Points in Software Development Outsourcing 168
- 01 Jan 2023 Top Software Development Challenges in 2023 162
- 02 Nov 2023 What are the pros and cons of iIT outsourcing? 161
- 26 Dec 2023 Improving Meeting Effectiveness Through the Six Thinking Hats 158
- 17 Feb 2022 Prioritizing Software Requirements with Kano Analysis 153
- 13 Oct 2021 Why Outsourcing Software Development Services Is Gaining Traction With Non-Technical Leaders? 153
- 04 Apr 2024 Unlock Vietnamese-Japanese outsourcing potential 149
- 01 Mar 2023 Bug Prioritization - What are the 5 levels of priority? 148
- 01 Oct 2022 Vietnam is a favorite supply of IT outsourcing services to Japan 148
- 01 Jan 2023 Top 5 IT outsourcing countries in 2023 147
- 08 Aug 2021 Why Nearshore Software Development is better than In-House Development? 147
- 17 Oct 2020 How Outsourcing can Improve Time Management for Better Business 146
- 01 Jan 2023 Why is Vietnam the Top IT Outsourcing Destination of 2023? 146
- 21 Oct 2022 Outsourcing Billable Rate 145
- 01 May 2023 Streamline Your Business with Outsourcing 136
- 01 Jan 2024 Tech Partnerships: Choosing the Right Software Outsourcing Firm in Vietnam 136
- 10 Mar 2021 The 7 Biggest Mistakes to Avoid Before Outsourcing a Web Development Project 129
- 09 Jan 2021 How can outsourcing enable business agility? 127
- 01 Jan 2024 12 reasons for software development outsourcing 124
- 21 Aug 2022 Forbes: IT Outsourcing Hotspot: Vietnam, A Small But Mighty Powerhouse 124
- 01 Feb 2023 [InfoWorld] Is your outsourcer agile enough? 124
- 01 Jan 2024 Software Outsourcing Questions for 2024 123
- 01 Jan 2024 Hiring Tech Talents in Asia: An Overview of Skills, Costs, and Potential 121
- 13 Jan 2023 What are the Hourly Rates in Offshore Software Development? 119
- 08 Jan 2024 Outsourcing on an As-Needed Basis 117
- 07 Nov 2024 Outsourcing Crisis Looming: Will Trump's Policies Transform the Global IT Landscape? 116
- 17 Jan 2024 What are the benefits and challenges of using multi-sourcing or single-sourcing strategies? 115
- 28 Oct 2022 Expect the unexpected in 2023 - How Outsourcing Can Help? 115
- 15 Nov 2023 IT Staff Augmentation Types and the Best Choice for Your Business 112
- 05 Jan 2024 Easy ASANA tips & tricks for you and your team 105
- 09 Sep 2022 Close Collaboration and Communication Can Overcome the Challenges of Distributed Teams 105
- 03 Jan 2023 IT Outsourcing Costs: Is outsourcing really cost-effective? 103
- 10 Jan 2024 Facts Chart: Reasons for outsourcing 98
- 12 Mar 2024 How do you create FOMO in software prospects? 79
- 01 Jan 2024 What The World Is Flat Means to IT Outsourcing 75
- 02 May 2021 Outsourcing Software Development: Avoid 8 Mistakes 68
- 14 Mar 2024 Why should you opt for software localization from a professional agency? 64
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
Top Trending Topics
Share This
Recently Updated News
