Hello ,
As a self-employed consultant or freelancer, you have choices about how to operate your business efficiently.
You can do all the work, partner with others, outsource some tasks, or use software and AI to assist you. Deciding whether to "make" (do it internally) or "buy" (outsource) various aspects of your business can help maximise your revenue. Regularly assessing your "make versus buy," options helps keep your costs down and revenue up over time.
The five-line model provides us with a framework to make decisions about the financial side of a business. This newsletter will focus on the second cost, the make-or-buy decision.
The model includes:
- Revenue from product/service sales (which must exceed costs)
- Cost to make or buy the product/service (your time, including materials and contractors)
- Cost of selling (marketing, advertising and selling costs)
- Cost of running the business (rent, insurance, utilities, subscriptions and administration)
- Profit (Revenue less the costs above)
The "make vs buy" decision comes up routinely and requires weighing time, costs and control.
Understanding Your Costs
To determine whether making or buying is cost-effective, you need a clearer picture of your business costs. The five-line model provides a framework for thinking about your expenses. You'll better understand the "break-even" points for outsourcing vs doing work yourself.
The Trade-offs
There are pros and cons to insourcing (doing work internally) and outsourcing. Outsourcing optimises cost and flexibility, while insourcing maximises control.
Three Key Factors to Consider
When deciding whether to make or buy a specific task, assess the following:
- Time—How much of your own time will it take?
- Cost—Which option has the lowest net cost after matching your preferred hourly rate?
- Control—How critical is close oversight and customisation for this work?
Consultants and freelancers commonly outsource tasks to free up time for higher-value work and lower overall costs:
- Content creation: Writing, copywriting, and content needs can be outsourced to freelance writers.
- Web development: Websites can be outsourced to developers and designers for ongoing maintenance and updates.
- IT and software: Specialist firms can handle software programming, application development and IT support.
- Accounting and bookkeeping: Accountants and bookkeepers can handle routine expense tracking, reporting and other financial tasks.
- Marketing: Marketing agencies and freelancers can manage campaigns, SEO, and social media.
- Administration: Outsourcing repetitive administrative tasks can provide scale and efficiency.
The specific tasks that individuals and businesses choose to outsource depend on their unique needs, priorities, available resources and core competencies. Outsourcing non-critical tasks can create capacity for more impactful work that draws on your expertise—helping maximise your productivity and profit as an independent consultant or freelancer.
With discipline around costs, clarity on your value proposition and an understanding of trade-offs, you'll make wiser choices that help maximise your revenue and positively impact you as a successful consultant.
Actively reassess the make vs buy decision. Your optimal solutions will evolve as you refine costs, sharpen your niche and build your business. Outsourcing non-essential tasks can save time and energy for high-value work that only you can deliver as an expert consultant. Having a more accurate way to determine your costs to complete the project helps you determine the price range you will charge.
Regular reviews of your "make vs buy" decisions help keep your costs in check, which flow through to profit. Combining options - outsourcing some tasks while collaborating with others - is often the most profitable hybrid model.
Here are five takeaways:
- Use the five-line model to assess your business costs and help you to determine your make vs buy decisions. Having a clear picture of costs is essential.
- Consider time, cost, and control when deciding whether to make (do internally) or buy (outsource) specific tasks. Outsource work that takes too much time or costs more than your hourly rate while completing tasks requiring close oversight.
- Both insourcing and outsourcing have pros and cons around cost, control, and flexibility. Finding the optimal hybrid approach for your business is vital.
- Actively reassess make vs buy decisions over time as your business evolves. What worked when you started may change as you scale and refine your offerings.
- Outsourcing non-critical tasks can save time and energy for high-value work showcasing your expertise. But maintaining some control over strategic tasks is often essential.
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Cheers
Nigel Rawlins
https://wisepreneurs.com.au/
I'm making lots of friends on Linkedin at the moment. If you haven't linked up yet, please do so.
The Wisepreneurs Podcast is about to publish my 15th episode, so if you haven't checked it out, please do that too.
