What is Outsourcing Savings and Why Should You Care?
Ever wonder if outsourcing could save your business a fortune? Outsourcing savings, simply put, is the cost reduction achieved by moving a particular segment of your business to a location with lower average wages. Typically, this means contracting work to another company or professional group in a different country, state, or region where labor is cheaper.
Why should you care? Because outsourcing savings can significantly reduce your operational expenses while maintaining, and sometimes even improving, the efficiency and quality of your output. Imagine cutting labor costs by up to 75%.
How to Calculate Outsourcing Savings
Calculating outsourcing savings is straightforward. We use a specific formula to estimate your potential annual savings:
[S = 251 \times 8 \times \text{Number of Employees} \times \text{Average Hourly Rate} \times \text{Outsourcing Savings Rate}]
Where:
- S is the total savings of outsourcing per year
- Number of Employees is the current number of employees you are considering outsourcing
- Average Hourly Rate is the average hourly wage of those employees
- Outsourcing Savings Rate is the percentage of cost savings from outsourcing (typically 35%-75%)
| Variable | Description |
|---|---|
| Number of Employees | Total employees working in the segment |
| Average Hourly Rate | Current employee's average hourly rate |
| Outsourcing Savings Rate | Percentage savings through outsourcing |
Calculation Example
Let's crunch some numbers. Say your company has a department with 30 employees, each earning an average of $20 per hour. You're considering outsourcing that department and the outsourcing partner promises you a savings rate of 50%. Here's how you would calculate your annual savings:
[S = 251 \times 8 \times 30 \times 20 \times 0.50]
Let's break it down:
[S = 251 \times 8 \times 30 \times 20 \times 0.50 = 602,400]
This equals $602,400 in annual savings.
So, simply by outsourcing, you could potentially save $602,400 annually. That's a significant chunk of change!
Why Use This Calculator?
Besides giving you a clearer picture of potential savings, this calculator helps you make informed decisions. Think about it: Would you rather guess and hope for the best, or know exactly how your bottom line would be impacted?
Plus, this calculator lets you adjust the variables (like the number of employees to retain or a new outsourced rate) to understand different scenarios.
In short, outsourcing could be the key to not only reducing costs but also increasing your company's efficiency. Use this calculator to navigate these decisions with precision and confidence.