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In-House vs. Outsourcing: How to Decide What's Right for Your Business

Bennett Conlin
Bennett Conlin

Learn about the pros and cons for both hiring in-house and outsourcing.

  • Perform a cost-benefit analysis to determine if outsourcing makes more sense financially than hiring an in-house employee.
  • Outsource tasks when an outside party can fill a knowledge gap within your company.
  • Never outsource tasks related to your company's competitive advantage.

When it comes to developing a successful business operation, hiring is critical. The best businesses tend to have the best teams. The hiring process, whether you're bringing on a full-time employee, a part-time worker or an outsourced helper, is a vital factor in small businesses.

Hiring staff members is an essential step of building your business, but it's not easy. To expand and grow your operation, you need more hands on deck, and you want those new hires to be talented and fit in with your team. Usually this means hiring in-house team members, but your business also has the option to outsource tasks – which makes hiring a little easier, as cultural fit isn't quite as important as it might be with a full-time employee. It still matters, but at a different level, as it's easier to move on from outsourced parties than it is to cut ties with a full-time, in-house worker.

You should understand when to outsource and when to keep responsibilities within your team. Small business owners often find themselves wondering, "Should I outsource or hire?" It's not as cut-and-dry as you might think, but there are a few key considerations when determining whether to hire someone full time or to use a service provider, consultant or freelancer.

Some new businesses fall victim to the idea that outsourcing tasks means those duties will be done more effectively at a lower cost. This can be true, but it's not always the case. We spoke to a few experts about how they've found success balancing in-house employees and outsourced workers.

1. Keep control of essential business functions.

Keep tasks related to your competitive advantage in-house. Otherwise, your business becomes alarmingly reliant on outsourced help, which can rarely be counted on as much as in-house staff.

"You don't want to outsource anything that is part of your core business," said Tim Wenhold, CIO of Power Home Remodeling.

A former consultant for the company, Wenhold stressed the importance of taking a deep look at what aspects of the business may actually be core areas. While Power Home Remodeling isn't a tech company, technology is critical to the business's success, Wenhold said. For this reason, he didn't outsource the company's IT tasks, even though other businesses frequently outsource IT responsibilities. He elected to build the company's technology department to ensure those working on mission-critical technological tasks were in-house employees.

Wenhold's point is an important one for small and growing businesses. It may seem simple, but it's critical to never outsource your company's competitive advantage. This can be detrimental to your company's culture and overall health.

"When you outsource too much of the core technology, what you end up with is a culture of maintenance people – people that are uninspired, that are just keeping things running," Wenhold said. "They're paid to keep the lights on, if you will."

Giving your employees tasks that are critical to the company's success is generally a good way to keep them engaged and motivated. Employees tend to be more driven when they're working on tasks they find interesting. If you give employees interesting work and show them how their work helps the company, motivation should increase.

Motivating employees and offering exciting work may also help bring in talent. "By keeping the challenging things in-house, we've been able to attract people from around the world," Wenhold said. 

With recruiting being a major challenge for small businesses, it's a good idea to keep the hardest and most rewarding tasks in-house.

2. Consider outsourcing tasks when you lack expertise.

Wenhold used the hypothetical example of a small business selling oranges to illustrate the potential benefits of outsourcing: If the employees at the orange-selling business aren't experts in technology, but the business has a few important but not critical technological tasks, it's likely the smart decision to outsource those duties. A small business focused on selling oranges doesn't necessarily need to run social media accounts, but hiring an outside social media person may boost sales.  

Similarly, if you don't have someone on your team with accounting knowledge, it makes sense to hire an outside party, especially when you're a small business and hiring a full-time accountant might be a waste of resources. If you lack knowledge in an area that isn't crucial to your business's competitive advantage, outsourcing may be a cheap and easy solution. Mundane tasks are perfect for outsourcing, according to Wenhold.

Use outsourcing as a way to fill knowledge gaps, rather than outsourcing tasks that align with your company's area of expertise. This seems obvious, but small businesses make these mistakes daily. It's best to hire outside parties to handle tasks that aren't in your wheelhouse.

You should also consider time constraints. Customer service can be a time-consuming task; using an outsourced call center or live chat solution can save your business time while still tending to customer needs. It's important to recognize areas of your business where outsourcing can help.

3. Decide what's best for your business and consider risks.

When deciding whether to hire in-house staff or outsource, you need to look at your business needs, as there are pros and cons to both options.

Don't get too caught up in comparisons to decide what activities your business should and shouldn't outsource. A business down the street might have a founder with a background in accounting, even though he runs a home design firm. That business might not outsource accounting because of its founder's expertise, but your business might have a deficiency in accounting knowledge and need to outsource that responsibility. It differs for every organization. It's also important to see the drawbacks and benefits of both outsourcing and hiring in-house staff members.

"You have more control over full-time employees than contractors and freelancers, because they're committed primarily to you and your company," said Hunter Hoffmann, vice president of creative and brand marketing at AmTrust Financial Services. "You're able to clearly set priorities, establish acceptable workplace behavior and, hopefully, get them to commit to not only their success, but the company's as well. With freelancers, you could end up competing for their time with other clients, and the work effort contractors put in can often wane toward the end of their term if they know they're not going to be extended."

While outsourcing your employees can be risky, hiring full-time employees doesn't always guarantee success either. The biggest issue is that you may not fully utilize full-time workers, Hoffmann noted.

"An employee is a fixed cost that can be a big challenge for a small business with fluctuating revenues," he said. "Businesses can manage their expenses in close to real time with contractors and freelancers to adjust to demand in a way they can't with full-time employees."

The bottom line on in-house vs. outsourcing

Determining the right decision for your business comes down to a thorough evaluation of your needs. Look for the mundane tasks that don't play a role in your competitive advantage, and start your outsourcing efforts with those responsibilities.

Additional reporting by Brittney Morgan. Some source interviews were conducted for a previous version of this article.

Image Credit: shironosov/Getty Images
Bennett Conlin
Bennett Conlin Member
Bennett is a B2B editorial assistant based in New York City. He graduated from James Madison University in 2018 with a degree in business management. During his time in Harrisonburg he worked extensively with The Breeze, JMU’s student-run newspaper. Bennett also worked at the Shenandoah Valley SBDC, where he helped small businesses with a variety of needs ranging from social media marketing to business plan writing.