Offshoring for small-and-medium-sized businesses

This is especially true if you are not running a Fortune 500 business. The smaller your business is, the tougher it is. You need all the same overhead as a big company, supported by much smaller revenues.

You need accounting, financial analysis and reporting, accounts receivable and accounts payable management. You need payroll and compliance. You need recruiting, compensation and benefits administration, training, and performance reporting. You need marketing and sales, market research and customer service. You need people to answer the telephone, handle administrative tasks and deal with a mountain of routine communications and paperwork.

In this day and age you need programmers, people to manage databases, computer and network support, help keeping email and websites and servers and who knows what else running. And, you still need to actually deliver your product.

For small businesses, you can’t possibly afford to hire all of the people you need, and it’s an endless war to constantly switch hats, make do and cut corners just to stay alive.

As your business gets larger, staffing needs proliferate like toadstools, and there is constant pressure from all sides to bring on more people than you can really afford.

People — hiring them, managing them, figuring out whether you are winning or losing from having them on board — is the central problem for almost every business.

How much a US staff member really costs

The average salary of a white collar staff member at the 25th percentile of the wage distribution in the United States (the bottom 25% of wages) is about $25,000 per year.

Payroll taxes add about 10% to that amount, and benefits (medical, dental, life insurance, workman’s compensation, unemployment insurance, etc.) add about another 10%. More if you have a retirement program, or contribute to 401K plans, or don’t require co-pays on medical benefits. So a $25,000 staff member costs $30,000 per year before they even sit down.

Now add space, power, furniture, a computer, software, a telephone, local and long distance calling costs, payroll fees, supplies, recruiting and training costs, and so on, and the fully loaded cost of that single basic staff member at the base of your organization is about $36,000 per year. $3,000 a month. $100 a day.

How much an offshore staff member costs

An offshore staff member costs just about exactly half that much. $1,200 per month instead of $2,400, and $300 per month in support and infrastructure costs instead of at least double that — for a total savings of about $1,500 per month, or $18,000 per year.

How much you can expect to save

Want to save $36,000 a year? Move two positions in your business offshore, or hire four people for the cost of two. Need to save $200,000 per year? Move 11 positions offshore.

Let’s think about that last example a little further. Imagine a $20 million business earning a 10% profit annually. That’s $2 million. A $200,000 savings for that business adds 10% more to the bottom line. Enough to pay for new equipment, or additional staff, or to retain as profit.

Getting staff offshore is all about business efficiency. You can do the same amount of work for half the cost, or twice the work for the same cost. It’s that simple.