Should you outsource client projects to subcontractors? And if you make that choice, what’s the right way to do it? That’s the focus of today’s post and video.

Sometimes it makes sense to outsource client projects because it leads to “easy money,” but without a process in place to deal with subcontractors? It can be a painful experience that will sap your time and energy, as well as your profits.

Simply put, you need outsource client projects the right way.

If you outsource projects without a process in place, it can ruin client relationships, and give your business a bad name. There are even cases where you can violate the terms of your client contract if you used external resources.

Before you even consider outsourcing client projects, make sure that those terms and conditions are not present in your contract.

In today’s Sage post, I’ll share with you seven tips on how to outsource client projects the right way.

Expanded Video Transcription

Why Agencies Fail When Outsourcing Client Work

The main reason agencies fail when outsourcing client work is because they don’t make adjustments to their business model. Many agencies assume that their existing business model will work just fine when you make use of subcontractors. But here’s the brutally honest truth: It’s a different business model when you’re working with subcontractors than when you’re working with employees.

When you have salaried employees, you can give them one more client project, and your labor cost won’t increase. This is because salaried employees are on a fixed salary, so costs don’t go up for each new project you add. Of course, if you overload your employees, then you will have other troubles on hand. But from a pure utilization perspective, most of the time a single project can be taken on with existing resources.

Contrastingly, if you don’t scope out your client projects properly, and you hire a subcontractor to do the work? Your labor cost can increase to the point where you end up with razor-thin profit margins, or no profit at all. I’ve seen this happen countless times. Agencies don’t know what they’re getting into, and that “easy money” turns out to be an albatross for the business.

If you haven’t adjusted your business model, and you want to outsource your client projects, then you should adapt before outsourcing. If you do it the right way, using the appropriate business model, outsourcing projects can be very lucrative.

Here are seven tips on how to outsource client projects right:

1) Charge clients appropriately for the service being performed

It’s not just about charging the amount that you have always been comfortable charging. You need to adjust the service fee to account for the new business model using subcontractors. Also, you need to have controls so that if subcontractors go over their estimate, that it doesn’t suck into your profits.

You have to make it clear that if they go over in their estimate or they didn’t estimate things appropriately, it’s on them and not on you. You can’t be the middleman or the middle woman in between client and subcontractor, and hope that everyone will do their part. You need to account for the upside or the downside that comes with the resources you’re working with.

2) Build strong margins into your pricing

Make sure that you price based on the profit margins that you want to target for your business. A reasonable gross margin target when outsourcing client work is fifty percent, but preferably even higher than that if you’re planning to make a profit from an outsourcing project.

If you can’t make at least fifty percent off of what the outsourced resources charge for the project, then you are not going to make a profit. Remember, you have other expenses for your business too, like project management expenses, and business development expenses.

3) Be transparent with your clients if asked

If your clients ask if you’re outsourcing, be transparent. Just because it’s not explicitly stated in the contract that you can’t outsource, doesn’t mean that they shouldn’t know when this happens. Clients should know upfront if the work will be outsourced, especially in projects that utilize sensitive data that can only be accessed by specified parties.

Make sure that it’s ok with your clients that you outsource some of the projects, because you don’t want to be in for surprises. Even though agencies outsource projects all the time, doesn’t mean you shouldn’t be clear about it with your clients.

4) Be very clear on the work that needs to be delivered

Clearly define the exact deliverables in as much detail as possible that the subcontractors need to provide. If you don’t define your deliverables, then you risk the subcontractor delivering a project that is out of the scope of what you originally planned.

Out of scope means increased your labor cost, and less profit margins for your business. Set the expectation up front, otherwise you’re going to be in for some harsh realities when you balance the books after the project completes.

5) Build your own project management time into the estimate

Don’t just think because outsourced resources are doing the grunt work that there is no work to be done on your part. Someone still needs to manage the client relationships and overall project flow.

It takes way more effort than you believe to be the liaison between your client and the outsource resource. Include account and project management time into your estimate, so you make sure you get paid appropriately for your work, and it doesn’t affect profits.

6) Have tight project plans, deadlines, and scopes of work

Make sure that you are very clear about what work needs to happen, who needs to do it, and when it needs to be delivered.

Get a commitment from the subcontractor that they can indeed deliver on the given timeline, and hold them accountable for it.

7) Account for the new reality of a different business model

Generally, in your agency, the business model is different when you use employees vs subcontractors to complete a project. With employees, each new project is almost certainly profitable, when using existing resources. With subcontractors, you might not be profitable even if you manage the project exactly how you do with an employee-driven project.

Outsourcing can be a significant profit generator for your business, but most agencies don’t do it right. Without the right business model in place, agencies actually lose more than they gain, and conclude that outsourcing doesn’t work profitably. In reality, it’s because the agency hasn’t made adjustments to their business model, workflow and project management processes.

Summary

1) Charge clients appropriately for the service being performed
2) Build strong margins into your pricing
3) Be transparent with your clients if asked
4) Be very clear on the work that needs to be delivered
5) Build your own time spent managing project into the estimate
6) Have tight project plans, deadlines, and scopes of work
7) Account for the new reality of a different business model

At the end of the day, the question of whether you should outsource or not is a numbers game. What are some of your tips on how to outsource client projects? Leave a comment on the blog.

This post and video was episode 55 in our 90 Day Challenge digital marketing series.

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