Ep. 462. Actual outsourcing cost breakdown

What is the breakdown of outsourcing costs? When most businesses go look to outsource, they want to know is this going to save me money? Because that's the primary driver in the beginning. And I will say that most people that I see outsourcing are doing it wrong in an attempt to save costs. They're actually losing on quality, they're losing on flexibility, and they're adding risk to their business. So let's break down the costs and let's talk about the rest of what you're doing when you're outsourcing. Okay, so the main focus, people want to know when they start outsourcing is what is this going to cost, what are the savings and what are the expenses? Let's get into it. Since I work with the Philippines where you are more likely to find someone good. Yes, you can find someone great anywhere in the world. You're just more likely just increase your chances when you go to the Philippines over really any other country. Let's talk about the cost differences. So let's take a PHP programmer for example. It's $100,000 a year person in the US if you it is a $12,000 a year person in the Philippines. So about $1,000 a month for a full time PHP programmer. Now if you're looking for a really amazing programmer in the US, it's going to cost you around $150,200,000 a year. In the Philippines, that person's going to cost you around $2,000 a month. So $24,000 a year. That's a significant difference in cost. Now let's look at other things. So an admin assistant, a virtual assistant, that person in the US is an $80,000 a year person in the Philippines you're going to start somewhere around $700 a month, up to $1,200 a month, which is going to be somewhere in $15,000 a year. It's a really, really big difference. Now in that are you sacrificing quality? Well, in programming talent? No, you're not sacrificing quality. You're going to have some really, really amazing talent the Philippines. And in fact I have about 10 people on my team who do programming and I would put five of them up really against anybody in the world in terms of programming talent. They're really, really amazing. Now in an admin assistant, where do you lose? Well, you lose not having them sitting in your office. Someone in the Philippines is just as capable of writing an email or of handling expenses or of calendaring for you. As someone in your office, you just don't have the ability to have them sit sitting in your office. You also might lose some flexibility in time zones where now that person's on the other side of the world and they may have to work the night shift to be on your time, which night shifts are hard, but it's definitely doable. And when you consider the cost difference, well, $80,000 a year versus $15,000 a year, it's a really significant thing. And often it's a barrier to entry to hire locally. So what's the actual cost of hiring in the Philippines? Well, there's the cost of dealing with time zones, there's the cost of salaries, there's the cost of not being able to walk out of your office into someone else's office and yell at them or being able to give them instructions to talk to them face to face. Although it's pretty easy with Zoom to have a face to face meeting with someone, you do lose the ability to yell at them though. If you yell at someone in the Philippines, you really damage the relationship and it's hard to come back from. So there's a cost in this. You have to be a reasonable person, a reasonable manager. If you're going to outsource, it's not the same as in the US where you yell at someone and it's okay the next day. Not the same in the Philippines. So what about other costs? Well, in the US you have to pay for insurance. You have to pay for business insurance for that person. You have to pay for office space and utilities. In the Philippines, you do not pay these things. They work from home, you don't have to have insurance against them. There's no workplace lawsuits. There's also not really benefits to be paid. So you're not paying health insurance, you're not paying their taxes. There's a whole bunch of cost savings in those things. Typically we calculate benefits at 50% of the actual wages of the person. So when you calculate an $80,000 a year person and you add benefits at $40,000 a year, that's $120,000 a year. If you're not paying that at all in the Philippines, well, $15,000 a year is pretty enticing. Now you can pay benefits in the Philippines. They're going to be significantly less. So a full health insurance plan is going to be somewhere around $500 a year. Same thing if you want to pay their Social Security. Paid time off is going to be the same. Actually paid time off is going to cost significantly Less because their wages are significantly less. So actually if you're going to pay benefits in the US or in Europe, it's going to cost significantly more than if you want to pay the same benefits in the Philippines. So the actual increase in cost is less. So there's another significant savings. Now what about the costs of other types of people? Well, I'm just going to give general wages here from the Philippines. An entry level person in the Philippines is going to be somewhere around 15 to 30,000 Filipino pesos per month, where on the low side of that, 15,000 pesos per month is not enough to survive. That person is definitely living with their parents. They are being supported by their parents and they're contributing slightly to the household income. At 30,000 pesos a month, they're actually okay. It's on the low end. They're not living alone, they're not surviving on their own. But they're probably acceptable if they're living with their parents now in US dollars is going to be somewhere around $300 to $550 per month. The very low end and on the low end you're finding someone who is a complete newbie beginner. They have no experience, they have not done it before. They are probably really looking for data entry type work. Now you can certainly find someone who is a graphic designer who is really, really talented. They're just starting, starting out and you just happen to find a gem, and I've definitely done that before. And you can find them on the lower end of wages, around $500 a month as a starting, starting wage with no experience. Now what about mid level? Well, now you're looking at 30,000 pesos, $550 a month to 60,000 pesos, which would be about $1,000 a month. And this is mid end people who have some experience and they probably have one to three years of experience in doing the thing that you're looking for. And that could be social media or it could be SEO or it could be phone calls or cold calling or sales, could be programming, could be CAD design. You can find anything in that range. You find people who are completely fluent in English, who can write really great content, who can do really great design work in that 500 to $1,000 a month. Now when you're looking for upper end, you're looking for senior people or even like C level people, like a cfo. This is where you start to go higher. So you're going to go from $1,000 up. The highest wage I've ever seen was around $4,000 a month and that is on the super duper high end. Typically if you're looking for high end people in the Philippines, you're going to be somewhere from $1,200 to $2,200 a month for full time work. And at this you can find career level talent, top of the line talented people, put them up against anybody in the world and it's super easy to find them in the Philippines at onlinejobs.ph. so that's the wage breakdown and the benefit breakdown. Now what other costs might so you could be paying for training. Now a lot of this can be done on YouTube nowadays you can also buy trainings at various training platform websites online. These costs are going to be similar across the board. Now you could also pay for education in the Philippines for like a master's degree. That cost is going to be significantly less versus paying for a master's degree in the U.S. typically university costs in the Philippines are going to be a couple thousand dollars for a degree versus a couple thousand dollars for per credit in the U.S. next you can include tools and software. Now these are going to be pretty similar costs. You're going to pay for Adobe Photoshop and that's going to be the same cost in the US versus in the Philippines. No real change there. So then how about the cost of finding and paying people well at onlinejobs Ph, which is the primary platform where you're going to find people from the Philippines, the cost is 69 or $99 per month to find people. As soon as you're done finding people, you, you can cancel that and now you're just paying the person and there's no markup on paying that wage. So if you're paying them $1,000 a month, you're paying them $1,000 and they're getting $1,000. Other platforms like Upwork where you don't pay to find the person but then they charge you a 10% markup and they charge the person in the Philippines a 10% markup. So now you're paying $1,100 a month. They're getting $900 a month. It's not huge, but it's significant. And it goes every single time you pay that person forever, you're going to pay that cost. It adds up. Fiverr has a similar thing where you don't pay up front to find people, but they're going to charge 20% and 20%. 20% front end, 20% back end. It's a really significant cost. Or an agency. So an Agency is typically going to charge a three times markup. So if you're paying the agency $2,000 a month, they're going to be paying that person in the Philippines $700 a month. But with an agency you don't get to do any finding, you don't get to make any choices of who you hire. They're going to say, well here's the person and that person may or may not fit your personality, may or may not be exactly what you're looking for, may or may not have the talent you want. Whereas at onlinejobs ph, you can find exactly what you're looking for. Personality wise, availability wise, talent wise, various skills, experience, number of years. An agency is typically looking for someone in a geographic area close to them so that they can bring them into their Office. Whereas with OnlineJobs ph, you're looking for anybody across the whole hundred million population of the Philippines. So yeah, the talent pool is really really wide and you can find any of them, whether they live on this island or that island, or way north or way south. It doesn't really matter to you. So now let me get into what I talked about in the beginning, about where I see people doing this wrong. Often the initial thought of, oh, I'm gonna outsource and it'll save me money. And so you go to an agency or a company who's gonna do it all for you because you don't want to deal with it. Well, in both of these situations you lose control. The control is someone else telling the person what to do. And whether they're telling them your process or their process is a big difference. If you go to an agency, you may be able to tell them your process, but now you also have a manager over that person. And often that management in the Philippines is poorly done. The very first time when I started outsourcing to the Philippines, I hired someone through an agency and that person that I had was at a really amazing programmer. He ended up quitting because he said to me, I can't handle the office politics here anymore. Well, that office politics had nothing to do with me and my business and my management. It was a problem with the agency. And that agency had now cost me a really amazing staff member and there was nothing I could do about it. So I had lost control over the person that I had put a whole bunch of time and effort into through no fault of my own. Now you could go to business process outsourcing place where you're going to say, hey, just do my SEO for me. And what you typically find with these places is they have a manager over a bunch of people and those people may or may not be doing it right. It doesn't matter because you have no control over it and no say over what's going on. Now if you happen to find the right company and they're doing it perfectly, that's amazing. They're going to mark those people up again three times and then they're going to add their corporate profit on top of that. Anytime I've gone down this route, I've ended up being disappointed and firing them and realizing, well, you know, I really could have done this on my own by hiring someone in the Philippines to do this for me. They work internally to my company, so I get to provide exact instructions. They were already an expert at it. I can hire them and find an expert. They knew what they were doing. They don't have that managerial oversight that is really often poor and overbearing and demanding. And they end up coming into my company and they care about the company rather than caring about the job for a BPO company that is not mine and they don't care about me, they don't care about the customer, they only care about keeping their job and they care about the facade of what work they're doing so that the manager thinks that they're working. That's my experience in hiring a BPO company or an outsourcing where you're not involved in the outsourcing so the costs go up three to five to 10 times and you just lose control of the process. In all of this you also add risk where that person doesn't work for you and they don't care. So now if they're a disgruntled person because of a manager, because of a non payment dispute, you have no control over that. And now that person could have access to your systems, potentially steal something because of things that are out of your control. And so you're adding risk without control. Where if you bring them into your company, you keep control, you have much less risk because you have control over the situation. If they're disgruntled, you know why they're disgruntled and you immediately have access to cutting them off or to taking care of the situation or making it right. There's all kinds of benefits to bringing them into the company and having staff rather than having an outsourced company that's going to handle this for you where you have no control. And this is what I see people doing wrong when they outsource. They think, oh Outsourcing is just sending everything overseas to someone else, when the reality is if you do it right, you're actually finding someone overseasing, bringing them in to your company and now they're doing the work. But it's an internal process and you just gain so many benefits from doing it this way. So now let's talk about the last actual cost in outsourcing, which is time. What takes the most time and what saves you the most time. So if you go to an agency or a BPO company initially, the upfront time cost is very, very low. You say to them, I want someone to do my SEO. And they say, okay, great, here's an SEO person and you don't have to do anything. Whether you get what you're hoping for is a different story, as I've already talked about. So the short term time cost there is very low. The long term time costs can be significantly higher where if that person isn't right now, you have all kinds of undoing to do with this agency or with this BPO company. When you're hiring direct and bringing staff in from overseas, the time cost up front and is more for you. You need to find the right person and hire them. Now. The time commitment here is nothing like hiring locally in the us often in the Philippines. I post a job, I get a bunch of applicants, I find the right person. It takes me a couple hours and I say, when can you start? And they'll say, I can start tomorrow. And now I've just found the right person. It took me one day and they're starting tomorrow for me. In fact, I just did this over the last couple weeks. I found someone in the Philippines for a programming position that I had. I wasn't quite ready to make the hire, but I had found the right person. It really only took me one day and I told him, hey, look, I'm not quite ready to start this job yet because we need to put a couple things in line, but I'm going to hire you. Give me a couple weeks. So he was on board the last couple weeks. I've communicated with him. Yesterday I finally made the job offer. It was Wednesday. I said, great, I'm ready for you to start. Here's the projects we're going to be working on. Here's what I want to pay you. When can you start? He said, well, I can start Monday. I need to clear my computer before I start with you and I'll be ready on Monday. Well, great. So that means I hired him on Wednesday. On Monday, he's Ready to start and he'll be fully ready to go. Now the time savings short term versus long term. So it took me a little bit more time to find this person upfront long term. Now he's internal to me and the chances of him sticking with me long term, so much higher than through an agency or through a BPO company. So I'll give you a couple examples of this. The very first person I ever hired in the Philippines, which was through an agency, still works for me today. I hired him in 2005 and he's still with me. So when I hired him through the agency, he knew absolutely nothing. The agency just pulled a warm body off the street. Regardless of what I had asked them to do, they just pulled a warm body off the street and said, here's your webmaster. And he actually didn't know anything and he told me that I don't really know anything. And I worked with him and he turned out to be a really hard worker, Diligent, shows up every day, cares and he's amazing, still works for me 20 years later and now he manages an eight figure business for me. So that's one along through the years. I have people that I hired in 2006 and 2008, in 2009 and 2011, they all still work for me. So what's the actual time cost? Well, the time cost of turnover we figure is a two times annual salary cost. Well, if my turnover is so low, it's almost zero. In fact, over the last 20 years, I've probably hired around 75 people in the Philippines and 55 of those still work for me today. Whereas in the US I've probably hired 15 people and 0 of those still work for me today. So the actual cost of local hiring is significantly higher. Whereas the actual cost of hiring staff in the Philippines who work in my business comes down lower and lower and lower. The longer they work for me, the more they work, the less time I spend teaching and training and bringing people in and hiring and the more return I get, the longer that person works for me. And this is where I say that most people do it wrong. They do it the time intensive way, which is going to be turnover and poor management from other people. Managing your people versus bringing staff into your company and that time pays off over and over and over again. I've had a thousand times ROI from these people that I've hired 20 years ago. So to summarize, the costs of outsourcing, yes, there's salary costs. It's a small piece of this and the salary difference from hiring locally versus hiring the Philippines is really significant. Then you have benefits costs, which in the Philippines doesn't have to really be anything but if you want to make their lives better. The benefit cost is significantly less than adding benefits. In the US you have the risk cost, which goes down significantly when you bring people into your company versus just allowing someone else to manage it. You have the control cost, which again goes down significantly when you bring people in and you control their situation. And then you have the time cost and the time cost looks backward. When you look at this, it looks like the time savings are significant because you don't have to put any effort in up front. When you go through a service, actual time cost goes up significantly from there versus the time investment up front. When you bring someone into your business and then they stay in your business because of the loyalty of the Philippines, then the time cost goes down and down and down over the years to where your ROI can become a hundred times or a thousand times roi because you brought that person into your business and now they understand your business and they understand your customers and they understand your model and they understand the way you do business and they start to contribute more and more and more to your business. So I hope this is helpful to you. I've talked about a couple ways to find people onlinejobs, PH or upwork or Fiverr or or agencies or BPO companies. I have a whole bunch of other videos about outsourcing and about the Philippines specifically because we just find that you increase your chances of hiring someone good out of the Philippines versus other countries in the world. You combine that with a whole bunch of other cultural things like English as a primary language there. They're loyal almost to a fault. You find people who are super honest, they're very well educated. You get this really unique cultural circumstance that provides better people and you just have a better chance of succeeding. My name is John Jonas. Thanks for watching.