When it comes time to evaluate a year’s worth of work at the end of a quarter or a full financial year, many companies struggle to find the ROI for outsourcing projects. The problem is that business leaders often lack the know-how to calculate the ROI for outsourcing projects. First, they may only locate specific factors ins vtead of all the relevant factors, and second, they may not assign those factors the proper weights. This blog post describes which factors are relevant to calculating an outsourcing project’s ROI and how they should be weighted.
Measure the ROI of Your Outsourced Sales Team: A Guide
Outsourcing affects the entire company. In order to measure and evaluate it correctly, the full impact must be considered.
The Cost-Benefit Analysis
A cost-benefit analysis is a tool that looks at the costs and benefits of an action and then compares them to determine whether the action is worth taking. It’s essentially a common-sense, intuitive version of ROI.
The first step when using a cost-benefit analysis to evaluate an outsourcing project is to clearly define the costs, benefits, and alternatives.
Costs – The costs of outsourcing include the actual monetary costs, such as the price to be paid by the company for the service and the amount of wages that the company must pay for the workers that it is outsourcing. It also includes the opportunity costs, such as the talent that the company must part with when outsourcing or the money that it would have to spend if it had not outsourced.
Benefits – The benefits of outsourcing include all the gains and advantages that outsourcing has for the organization, such as the money that the company would save by outsourcing its sales process.
Alternatives – The next step is to consider the alternatives. If a company is considering outsourcing its sales process, how else could it lower its costs and increase its revenues?
Increasing Customer Lifetime Value
A customer’s lifetime value is the present value of the future earnings of the customer. It is calculated by adding up all the profit that a company will make from a customer over their lifetime, such as through future purchases.
If a company wants to increase the customer lifetime value of its customers, the way to do this is to reduce the cost of customer acquisition through outsourcing. Outsourcing the sales process allows companies to reach their target customers at a much lower cost compared to in-house sales.
Calculating Customer Lifetime Value
There are two ways in which customer lifetime value can be calculated:
The first way is the net present value (NPV) of the customer. This involves figuring out the net profit a customer will bring in over time. For example, if a customer will bring in $20 per month for three years, their value would be $6,000. This is calculated as, $20 * 3 * 12 * 3 = $6000. The second way is the discounted cash flow (DCF) method, which is a little more complex. Under this approach, a customer’s lifetime value is the present value of all future cash flows. In the example above, a customer’s value would be $6000 because that is how much it would cost to generate $6000 in revenue in year 3.
Qualitative Factors May Be Difficult to Determine
Some factors that you need to consider when evaluating the ROI of outsourcing are qualitative. They are based on the perception of what is best for the company rather than on its actual financial worth. Qualitative factors include things like whether or not the company should maintain its integrity or be more flexible. Some companies may want to maintain their professional image, as customers may value this. If a company is flexible, it can quickly adapt to changing customer needs.
Keep in mind that the qualitative factors will be easier to measure with the help of a business expert.
There are also several quantitative factors that should be associated with an outsourcing project. Many of these factors are usually calculated as part of the cost-benefit analysis, but others are not. Quantitative factors include things like the portion of the workforce that is outsourced, any unexpected costs, and the cost savings from outsourcing.
One Thing Is Certain: Don’t Outsource ROI Without Clear Goals
When evaluating outsourcing projects, it is important to consider all the relevant factors. Although the cost-benefit analysis is a straightforward way to measure ROI, it is not foolproof. It does not factor in qualitative factors like the company’s integrity or the value of its workers’ professional image. It also does not account for the ROI of maintaining in-house talent.
The cost-benefit analysis can be a good starting point for evaluating outsourcing projects. However, it is not clear enough. Especially when calculating the ROI of outsourcing, more can be done to arrive at a more accurate answer. It is important to figure out the impact of outsourcing on all areas of the business, including the customers, the workers, and the company’s image.
Outsourcing is not without its risks, such as loss of control and the potential for blowback if the company does not plan properly. The process of outsourcing should be undertaken to help a company succeed. If a company is not profitable, then it should not attempt to outsource its sales process.
This is because a company’s ability to recover from an unsuccessful project is a key part of its ROI. For example, if a company loses control of its in-house sales process, it may start to lose control of its in-house sales team, which could lead to high turnover and the loss of its best sales team members. Finally, whether or not outsourcing a particular project is worth it depends on whether or not it will lead to a positive return.
ROI is calculated by comparing the gain in value that arises from the project to the number of resources that the project consumes. If the return is positive, that is money well spent.
If you are looking for a positive ROI in your outsourcing efforts, come to CrewBloom. CrewBloom’s disrupting remote sales outsourcing, connecting top-tier affordable professionals with remote sales and support roles. Let us help you put the right people in place today!