The Disadvantages of Low End Outsourcing
My History of Outsourcing
Last year I lost thousands of dollars multiple times outsourcing projects to people who could "do them no problem" until time for showing the results came in, and that capital was simply wasted. At the lower end, where people will take your money and do nothing for you or offer services not worth paying for, there will always be a market where people are glad to take your money.
That piece of the market creates a market for lemons effect, be it SEO, web design, programming, eBay listings, whatever.
The Cost Advantage of Outsourcing is Quickly Eroding
Not only is there a market for lemons effect, but the cost savings advantage is quickly eroding:
The reality is that wages are rising in India. The cost advantage for offshoring to India used to be at least 1:6. Today, it is at best 1:3. Attrition is scary.
Jobs that are low value-added and easily automatable should and will disappear over the next decade.
That means that if you provide a high value service, there is a greater presumed risk to hiring you, unless you have great brand strength and/or enjoy valuable personal recommendations. Worse yet, if the job is easy to automate eventually a computer will do it.
The Problem With Most Outsourcing Projects
Many people who look to outsource have a marginal business model and are outsourcing rather than improving their business model, in a last ditch attempt to try to keep it surviving after the business model is already in decay, without changing their business model to fit the current marketplace.
High End Business Process Outsourcing
You Can't Outsource Loyalty
At the other end of the market, some of the most talented people are also so ambitious that loyalty or output is limited. When I decided to change the SEO Book business model about 6 months ago I started working with one of the best programmers I have ever met. He did great work and started off faster than lightning, but he wanted to grow his revenues so fast and was so overwhelmed with work that he had a hard time making time for my project. In spite of me sometimes paying him 250% of his original rate, he and I both decided that it would be best if I finished the project with someone else. So then I ended up spending thousands more to have some re-learn some of the stuff he did, and then create custom coding to
- verify the affiliate program would work and give the proper affiliate credit while changing the tracking method
- cross reference account status and permissions across 3 databases
- integrate it all with Paypal subscription data
There are still a couple things with the site that I really need to improve (Drupal FlashVideo conversion and some stuff with the Autoresponder module), and that does not even include additional features I want to add. The second programmer is helping with some of it, I am doing some of it, and a third programmer is helping with some of it.
Freelancing to Pro: Training Your Workforce for Better Jobs
I outsourced the writing of one of my sites to a person who was passionate about the field. I let them be associated with the brand and put their name on it so they would be more passionate about building it up.
I have marketed the site quite aggressively and gave them my ideas for how to create featured content and what topics to write about. That has lead to them getting so much exposure that other people are offering them higher paying jobs.
There is an aspect of outsourcing where if you teach them enough and give them enough exposure they end up being worth more than you can pay them unless you already have a market leading channel.
When Outsourcing Works Great
Pre-made & Self Serve Software Packages & Services
- Most hosting companies are quite reliable because their business demands it. YouTube is quite reliable for hosting bandwidth intensive videos
- Payment processors like Paypal tend to be quite reliable.
- software packages like SendStudio, iDevAffiliate, and Vbulletin (they have a large enough customer base to provide a best of breed product)
- Collaboration tools and software as a service like Google Docs
- freeware like Xenu Link Sleuth
- open source software like Firefox, Drupal, Wordpress, and OpenAds (though you may need to hire someone for customization)
- Ad networks like AdWords and AdSense
- competitive intelligence tools
- affiliate marketing programs allows advertisers to tap new channels with limited risk
- simple utilities that help convert a template to a Wordpress theme like Themespress (though even that might require some tweaking)
- HTML code creation and improvement services like PSD2HTML
All the above models work so well because they
- allow a single piece of work to be sold many times
- use the feedback of many customers to improve the product
Word of Mouth Recommendations
- All my hosting providers that I recommend were recommended to me by other online friends.
- I have a guy who makes banners for me who is fast and does great work. He was recommended by a fellow SEO.
- My designer for this site and other sites came as a recommendation from other friends.
- Most of my other custom service providers are people who read this site, learned to trust me, and built a relationship from there.
My wife and I have only bought outsourced services via word of mouth recommendation that I ended up regretting on 2 occasions. In both cases, the person giving the word of mouth marketing was recommending themselves. Other than that, I have rarely had a bad experience with word of mouth marketing. And I think this is true for two reasons
- you first learn to trust the source, and they earn that trust over months and years
- then you trust what they recommend
Spreading that risk out over stages lowers the chances of making a bad choice.
How to Continue to Profit as an Outsourced Service Provider
The 20th century was about sorting out supply, the 21st is going to be about sorting out demand.
As the cost advantage of outsourcing disappears, the web gets polluted with scams, the web gets saturated with competitors, and more offline conversations influence online transactions, it seems the best ways to make money outsourcing are:
- work to build some of your own projects so you are not reliant on clients
- specialize on a niche and own the idea
- build a brand that demands market leading rates
- give away a lot of value free to do your marketing for you and qualify your prospects
- inspire customers and ensure you offer a remarkable valuable service worthy of word of mouth marketing
- turn your service into a product that is sold as a service, and include customer interaction touch-points where it makes sense to add value
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