Will Outsourcing Create Higher Profits?
When we think of outsourcing, we immediately think of manufacturing goods overseas or customer service reps with thick accents reading from a script. Even with all of the negative images of outsourcing, should you still outsource parts of your business or even vital functions? Here are some pros and cons:
Pros of Outsourcing:
Potentially lower costs and better service: Most small businesses do not have the need or resources to have an in house bookkeeper, biller, receptionist, administrative assistant, IT professional, or even your business operations. When outsourcing these roles you can generally get a high level of expertise without the cost of having a full-time or even part time employee. There are probably many businesses that you interact with that outsource some or all of their operations that you are not even aware. Examples include: dry cleaners outsourcing all or some of their operations, restaurants outsourcing their desserts, professional services firms outsourcing to other firms or overseas, and online retailers outsourcing their distribution and fulfillment centers to Amazon. Even your local ice-cream shop probably doesn’t make its own ice-cream.
Continuity: If you choose a good outsourcing partner then you do not have to worry about staffing issues or purchasing and repairing equipment. This helps to ensure that your business operations do not experience major hiccups.
Cons of Outsourcing:
Ironically, some of the reasons for outsourcing can also be the same reasons for not outsourcing.
Potentially higher costs and worse service: An outsourcing partner may actually cost you more than having the task or operations in house, and a cost-benefit analysis should be prepared to see if it makes sense to outsource. Other outsourcing factors to consider are the quality of the task or operations being performed, lack of knowledge of your particular business, and a lack of customers knowing and interacting with your staff.
Continuity: What if a major outsourcing partner makes a change to their policies that adversely affects your business so that you cannot rely on them anymore? If you don’t have another alternative then you may not actually be in business anymore. Also, company culture plays a large role in the success of your business, which is generally lacking from your outsourcing partner.
Outsourcing may be beneficial to the growth of your business after carefully weighing the pros and cons. Sometimes outsourcing may just be a temporary solution until you have the capability to perform the outsourced function in house.
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Just When I Thought I Was So Smart . . .
As a professional, it’s always wise to project a good image of yourself, especially that you are intelligent. However, sometimes or many times we do things that really humble us and hopefully help us to not be so prideful. Here are a few things that I have done recently and not so recently:
GPS: My GPS on my phone showed that it would take about 2 hours to get back home, which I thought was due to traffic and was normal, even though I was about 35 minutes away. For some reason the GPS kept on taking me through side streets with lights, which seemed to appear every 200 feet. Finally, after about 20 minutes I pulled over and took a good look at the directions and realized that I was taking the bike route. Yes, it took me 20 minutes to pull over. I think that my pride ran away at that moment.
App and phone purchases: If you know anything about children and video games then you know that you can make in-app purchases within the games to obtain more virtual money, coins, or gems. There weren’t the proper safeguards in place on their tablets and in a blink a lot purchases were made. A lot of purchases were made. Did I mention that a lot of purchases were made? We were able to get some refunds, but let’s just say that where this is a will there is a way, especially when your children then ask if they can borrow your phone and decide to go on a shopping spree at Amazon. I really don’t need a PS4.
Per diem: When I started my practice years ago during the recession it took time to acquire clients, which is normal and expected. In the meantime I could have worked per diem at another firm at least for that first year or so. However, I had such a bad experience with the previous firm that I worked for as an employee that I told myself I would never again work for anyone else. The extra cash made working per diem would have been nice and would have made the transition from employee to practitioner easier and less stressful financially. Eventually, I did work per diem after about a year or so at a few different firms, and I met some really good people.
There are many more that I’ll keep to myself, but we all need to be humbled from time to time.
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This Will Kill the Economy Long-Term
There are many factors that can help an economy to grow, including productivity gains, wage growth, sound governmental policies, healthy banking systems, etc. A lack of all of these items will hurt economic growth, and there is one more often overlooked item that can and will devastate an economy over the long haul.
It’s probably not what you think, but I’ll give you a hint: think Japan. What is a major issue that is facing Japan? Low birth rates and a disproportionate amount of older persons compared to younger persons. Why does this matter?
Minimum: Statistically, a country needs approximately 2.1 births to have a stable population. If you want to bury yourself in statistics, then you can read reports from the U.N. or The World Bank. Although there are lower mortality rates than in the past, fewer births will mean a declining population and a disproportionate amount of older persons. By the way, the world’s population is expected to stabilize and/or decline by the end of this century.
Disproportion of elderly: In Japan, the population of elderly persons is much higher than in the U.S. Unfortunately, with lower birth rates there are less younger people able to physically take care of the elderly and also financially. Systems like social security will not be able to continue in a healthy fashion if there are not enough younger people available to contribute towards the system.
Basic math: If there are less people available to purchase services and products then economic growth will stagnate or decline. This can be offset somewhat by productivity gains and wage increases to an extent. Also, there will not be enough candidates to fill employment opportunities at businesses, which will stifle growth further. More people = growing economy.
Myths?: I believe it started back in the 1960’s with doomsday scenarios of overpopulation and a strain on the resources of the planet. It really hasn’t panned out, but there have also been other modern inventions and policies that have stifled population growth. There is one statistic that I’ve heard that states the entire world’s population can fit in the State of Texas comfortably. Even if this statistic is way off and it would take the entire United States, then that would leave the rest of the world wide open.
Solutions: There are a few solutions to address this problem. One is immigration from countries or regions with high birth rates, such as Africa to countries with low birth rates, such as Japan. This would take changes to immigration policies enacted by governments. The other solution is to encourage families to have more children and not to wait too long to do so. What is the worst that can happen – you may need to buy a massive van to drive your family around?!
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Want a Better Business? Focus on Recurring Revenues!
There are more ways to make money in business that can be listed. However, one mostly overlooked business model by a majority of small businesses is the recurring revenue model. Larger businesses already know this and are taking advantage of the benefits. Here are some pros and cons and how to implement the recurring business model:
Pros: Recurring revenues, specifically monthly recurring revenues, provide a steady stream of predictable cash flow. Since you can easily predict your income you can plan ahead for the amount of expenses needed to support your revenues, such as employees, technology, supplies, inventory, etc. This will in turn significantly lower your expenses and help to increase your profit margin. Additionally, a business with recurring revenues has a much higher value than one-shot deals. Think homebuilder (one-shot) vs. a subscription service like Netflix (monthly revenues).
Cons: Many small business owners love the large payments that they receive when they land a one-time or short-term project, which do not exist with the recurring revenue model for the most part. It can take time to build a recurring revenue business, but an existing business should realistically be able to see a massive change with a one year period.
How to Implement: Take a look at the services and/or products that you provide, and determine which ones can be modified to fit the recurring revenue model. For example, a marketing company that helps clients with social media can develop a package to perform certain tasks each month in exchange for a recurring monthly fee. Virtually any business can turn at least a portion of their business into recurring revenues
The recurring business model is not costly or difficult to implement, but rather a low-risk, high-reward activity. It takes courage and openness to change your business, but it will be worth it.
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