The Cost of Outsourcing

How much does it cost to outsource

 

We’re all busy, and I don’t know about you, but I hate cleaning. I also am not a huge fan of raking and mowing the lawn. Come to think of it, I’d prefer to hire a plumber to fix our toilet and a handy person to help install a sump pump. Yet, I resist.

Although I tell myself that it’s not a lot of money, and that I could be earning money during the time that I’m not cleaning the house, I still resist the temptation. But I have never actually crunched the numbers.

How much does it cost to outsource?

To understand exactly how much it costs to outsource, the out-of-pocket cost of the service is the easiest factor to consider. The other side of the equation is to figure out your Real Earnings, a concept trumpeted by the authors of Your Money Or Your Life.

Ready? Here we go:

1. What is the pre-tax cost of the service? 

Let’s take the example of the house cleaner. This is the most tempting outsourcing option for me. At $80 a pop every two weeks, it would cost $2,080 a year.

That $2,080 is after taxes. At a guesstimated tax rate of 30% (I’m severely guessing here, I don’t know our actual tax rate), we would have to earn $2,971.

2. What are your Real Earnings?

Real Earnings is the amount of money you make after you subtract your work-related expenses from your paycheck and add your commuting time to the number of hours you work. Work-related expenses include the cost of transportation, the cost of work clothes, the cost of dining out (if you don’t brown bag your lunch), and other costs associated with your job.

For me, I work 50 weeks a year (remember, I don’t get paid time off) and earn $50 per billable hour from my institutional clients. (If you’ve never tracked your billable hours, you may not realize how much BS happens in your day that is not actually “work.” You chat with your co-workers, grab lunch, use the restroom, check your email, call your health insurance company, etc. All of those things detract from your billable, productive, hours.) For each institutional client, I bill about 4 hours a day; and work 4 days a week. I make about $40,000 a year.

To earn that $50 an hour for four hours, I have to drive 1.5 hours round trip, fill my gas tank twice a month and, at one client, pay $19 to park in the city. On an annual basis, that’s 300 hours commuting, $520 in gas, and $1,900 to park.

It costs me $2,420 and 300 hours just to get to work. Over the course of a year, I work about 800 billable hours (although, they are full days of being at the office).

For at least 1,100 hours of my life, I get paid $37,580. My Real Earnings are just $34.16 an hour.

3. How Much Does the Service Cost in Real Earnings? 

To earn $3,000 extra annually, I would have to earn an extra $60 per week to pay for the house cleaner. At a rate of $34.16 per hour, it would cost me 2 hours of my life every two weeks to pay someone to clean my house. I think that’s the same amount of time I would use to clean the house.

Ideally, of course, I would be making scads of money without even having to leave my home. That would be awesome. And you bet I would hire someone to clean the house for me! But that is not the case, and we could certainly use that $2,080 elsewhere.

Do your finances allow you to outsource? Do you think I’m being too mathematical about this? 

image by samuiblue via freedigitalphotos.net

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6 thoughts on “The Cost of Outsourcing

  1. My philosophy is a simple one: We have 3 currencies in life: Time, Money and Energy. When we make choices to spend down or save up in one, it does so to the benefit or detriment of another, so we should make sure we’re looking at the full balance sheet.

    With this post, you’re looking (it seems) purely at: “This is the only way I earn money, and I’d have to work two extra hours beyond what I do today to fund it, and it is the same 2 hours I’d spend to clean it, so, it’s a wash, and I shouldnt bother.”

    The fact is, the cost of cleaning your own home isn’t just 2 hours. It’s:

    1) 2 hours you don’t have lying around today, at the end of your work day, because you want to spend time with your littler ones at home, and your husband.

    2) 2 hours that don’t come in one block, so it’s starts and stops, which always waste more time, so it may even be more than 2 hours, since it’s not continuous

    3) the Energy it takes to actually focus on the job, do it right.

    4) Let’s even throw into the energy space that the value you’ll get from paying someone who does it excellently and more efficiently than you might results in a cleaner, healthier, less stressful home than you might execute in the same 2 hours

    I’m not saying to hire a cleaning person. It may or not be the right choice for you. What I am saying is that the balance sheet is broader than just the hourly rate, regardless of the fact that you’ve calculated a mostly-loaded rate that shows the full value of those dollars, there’s more value to the outsourcing model than just the price tag!

    • Kathy, Those are all really good points. There’s a lot more to the decision about outsourcing than just the financial cost.
      If I hated my job, I would never outsource because anything would be more enjoyable than working extra hours. Or, if I was really terrible at something (painting is a good example), then paying someone to do it will get a better outcome.

  2. I did the math like you did and it’s kind of depressing. It also makes me realize how lucky I am to be in a high paying field. I just heard of someone yesterday who will be driving ~45 miles to work at the mall (I can’t imagine they’re making more than $15 an hour). So that means that they’ll be paying for the gas/wear/tear on their car with the first 3 hours of work.

    These calculations really blow your mind but really can help you make an educated decision.

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