Brent Hodgson, Copywriter

When it comes to outsourcing, the price you pay is just as much about the output as the hourly rate.

Just because offshore service providers charge a lower hourly rate - it doesn’t mean that they are in fact cheaper.

Even though you pay less per hour, some providers cost you much more to deliver the same output than others.

That’s why you must have a measure that takes into account both output and input when you’re using paid contractors. You need a benchmark.

The benchmark I use is very simple.

Actual Cost of Output / Measure of Output = Effective Project Cost

The measure of output is a way of measuring the quantity of output, value of output, or comparable cost of output for that specific task.

This benchmarking tool has shown me that often, offshore outsourcing providers are significantly more expensive than their domestic (Australian) alternatives.

Let me show you a real-life example:

I recently hired an offshore PHP development company to do some contracting work for me.

The company had all the credentials I was looking for, and was advertising rates of US$12 per hour for expert PHP developers.

When they had completed the project, they billed 24 development hours.

Pretty cheap at US$12 per hour, right?

Only $288?

Well… No.

It was double the benchmark cost, meaning the offshore providers were 12 times more inefficient than domestic (Australian) providers.

But unless you had a benchmarking tool, a way of measuring the Effective Project Cost, you wouldn’t know THAT.

In this example, several Australian developers had quoted 2 hours to complete this task, at $44-50 per hour (US$40-46).

So my measure of output was US$138 (2-3 hours at US$46).

If these outsourced PHP developers at US$12 could achieve the same output in under 11.5 hours (equal to US$138), I would have been ahead… Even though the project would have taken roughly 4-6 times longer to complete.

But based on my formula (Actual Cost of Output / Measure of Output = Effective Project Cost), the numbers were as follows:

Oursourcing to $12 per hour provider in India:

288 / 138 = 2.09

Outsourcing to $44-50 per hour provider in Australia:

138 / 138 = 1

The Effective Project Cost of using this provider $12 per hour was more than double the cost of the benchmark output value (based on a comparable cost).

This calculation exposed some big flaws in my outsourcing hiring system which I needed to correct.

But it also reveals a trend where it’s cheaper to have a lot of tasks completed by native English speakers ahead of offshore non-native English speaking providers.

A simple data-collection task was performed by two providers - one Australian at AUD$15 per hour (US$13.88), one offshore at AUD$9.72 per hour (US$9).

The formula for outsourcing to the Australian provider:

$15 per hour / 13.33 outputs (pieces of data) collected per hour = Effective Project Cost of 1.13

The formula for the offshore provider:

$9.72 per hour / 7.25 outputs (pieces of data) collected per hour = Effective Project Cost of 1.34

Even though the hourly rate of outsourcing to offshore provider was 64.8% of the hourly rate in Australia, the Effective Project Cost of this project was 84% lower when keeping outsourcing to an Australian provider.

I’m not against hiring offshore providers. But the numbers have to stack up.

It certainly makes you think beyond the hourly rate.

Brent

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