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The Hidden Costs of Traditional Outsourcing

The Hidden Costs of Traditional Outsourcing

Here’s a puzzle for you.

Outsourcing services like customer support and content moderation seems like a great way to reduce operating expenses.

After all, traditional outsourcers – your call centers, your BPOs – love to talk about their low hourly rates.

But when you get the bill, it’s always more than you expected.


It’s because traditional outsourcing comes with hidden costs.

As your friendly neighborhood untraditional outsourcer, we’re more than happy to point them out for you.

The FTE staffing model

If you’re paying for FTEs (and not services by the hour), you’re paying an FTE tax. Essentially, you’re paying people to work on your project 8 hours a day, but they’re only on task part of the time. We’ve discussed this in more detail elsewhere.

Long story short: if they’re selling you FTEs, you’re probably paying about 20% more than necessary.

You may want to do a bit of simple forensic accounting to see how much of an FTE tax you’re paying.

Lack of customization

If your traditional outsourcer isn’t tailoring services to meet your business goals and KPIs, you’re probably paying for stuff you don’t need or not getting the results you want.

Do you feel like I have the right team with the right tools on the right schedule? Is scheduling Tetris leaving you chronically overstaffed? Are you meeting your business goals?

Missing KPIs might not show up as a line item on the balance sheet, but they are going to cost you in the long run.

Slow ramp up

Is your current outsourcer able to ramp up and scale quickly?

Slow lead times are costly. More time means more expense. That one is easy to spot.

The inability to seize opportunities quickly is costing you.

How much customer goodwill erodes if response time slows? How much risk accrues when content moderation falls behind? What would you stand to gain if you could enter a new market twice as fast as your competition?

Are key metrics like handle times on your projects improving? Is your vendor optimizing workflows and using technology to increase efficiency?

If it all feels slow, that’s money out of pocket and opportunity slipping away.

Inflexible contracts

Did that low hourly rate come with strings attached?

One way traditional outsourcing makes low hourly rates pencil out is by locking them in. Techniques include setting high minimums and requiring long notification periods to reduce coverage. If you can’t scale down as easily as you can scale up, you’ll end up overpaying.

No terms are so good that you want to be stuck with them when you no longer need them.

Low Quality

Poor support and inadequate moderation aren’t as easy to detect as the FTE tax, but they will cost you all the same. Lax customer service erodes loyalty and jeopardizes future sales. Lapses in trust and safety can disengage your community and tarnish your brand.

Problems like these tend to linger long after they are solved. And the cost of dissatisfaction and distrust can build up.

So if you see CSAT drop or sentiment head south, there will be a price to pay.

Now you know where to look if you’ve been feeling like you’ve been paying your traditional outsourcer too much and getting too little in return.

In our next article, we’ll explain why traditional outsourcing operates this way. Until then …

Untraditionally yours,

— ModSquad

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