Hiring internally or outsourcing your Backoffice operations is on the minds of businesses everywhere.
Now, as the world prepares for tighter budgets and narrow margins, weighing the costs and benefits of outsourced teams is ever more important. We’ve laid out a cost comparison for hiring a local operations executive versus a counterpart abroad. Long story short, it’s up to 73% cheaper to outsource backoffice operations compared to hiring one in-house. Taking all the costs of Operation management into account — not just salaries — the costs can get very expensive, very quickly.
How much does a Logistics operations executive earn?
If we break this down further, Americans work an average of around 1,800 hours per year according to a Pew analysis of Labor Department data. That puts hourly rates for back office Executive in the United States at $35 an hour for junior executive and for a senior executive role, that increases to $45 an hour.
These labor costs can quickly get ahead of you as the competitive market dictates the price to hire internally. Salaries alone are not the only costs, however. Sourcing and recruiting also factor in.
External recruiting agency
If you have a small company with fewer than 40 people on board it makes more sense to use the services of external recruiting agencies. They usually take between 15-30% success fee of an employee’s annual pay. Let’s take the average 20%.
Let’s make further calculations.
- Logistics executive — 63,000 / 100 x 20% = $12,600
- Senior Logistics executive — 81,000 / 100 x 20% = $16,200
Internal hiring team
If you want to avoid an external recruitment agency, you can hire in-house recruiters instead. The average salary of the HR specialist with all bonuses and commissions is around $70,000 per year.
The mean number of job placements per recruiter is 40. The median number of placements per recruiter is 20. Let’s use 30 placements per year for our calculations.
However, the cost of the time stays the same. The average acceptance rate for candidate offers is 89%. 30 / 100 * 89% = 26.7
Let’s keep our model simple and say that the HR specialist is busy only with recruiting. So the cost of the time spent on one hire = $70,000 / 26.7 = $2,621. The average cost of publishing the post on job boards is $400.
You should remember that it will be visible for 3-4 months. If you total the cost of time plus the cost to place an add on a job board, it adds up to $3,000 per placement.
Extra costs of internal hiring
In a Harris survey by Glassdoor, the employer branding cost varied by company size, averaging $129,000. It grows exponentially by company size. Companies with fewer than 500 employees spent $6,300, Companies with 500-3499 spent $81,400 and those with more than 3500 employees spent a whopping $335,900 on average to hire internal teams.
Recruiting technology costs:
In addition to time and salary per HR specialist, they also need to use tools to work and track their results. Here are some of the more common tools HR teams use and how those costs add up.
- Video interviewing tools like HireVue and SparkHire. + $3,000 / year
- Blind hiring software like GapJumpers. + $1800 / year
- Background check services software like Checkr. + $348 / year
- Applicant Tracking Systems (ATS) like Workable. + $4,000 / year
Remember that your HR specialists also need to be hired, onboarded, and trained. They also use office space and supplies.
Costs after the back office executive accepts the offer
According to a benchmark report from SHRM, the minimum cost of training is an average cost-per-hire of $4,125. But the cost of onboarding a new worker also includes some other factors, such as:
The hours managers spend onboarding new workers plus productivity loss minus the average cost: $10,000 per employee
- Paper, printing, and office supplies: between $922 and $1,106 per year
- Training: $1,252 per employee on average per year
- Tools and software: $1,200-100k on average
- New office equipment: about $1800 per back office executive
- Office space: $6,000 per person per year
Together with the back office executive’s salary:
- Logistics executive – 63,000 + 19,245 = $82,245
- Senior Logistics executive – 81,000 + 19,245 = $100,245
With External Agency
- Logistics executive – 63,000 + 28,725 = $91,725
- Senior Logistics executive – 81,000 + 32,725 = $113,725
Cost of hiring a bad back office executive
Taking into account all the costs above, you may still choose someone who’s not a good fit for your team. I’ll get right to the point. The total cost of “bad hire” is upwards of $50,000
Assuming a bad hire’s 8-week tenure: ( Approximation )
- Cost of hiring (recruitment, onboarding) $25,486.50
- Compensation (cost to employer) $10,500
- Cost of maintenance (office, office supplies) $1,218.46
- Productivity loss $10,500
- Totals : $ 47,704.00 + Replacement cost
Outsourcing costs example with MFREIGHTS
You pay 12$ per hour on a time and material model
- It’s the same rate for junior, mid and senior.
- The more back office executives you take, the less you pay.
- Usually, it takes less than three weeks to deploy an executive
- You have the flexibility to change the number of back office executives as and when you scale up or down
- If you don’t like how an back office executive is working, we replace him or her at no cost
- If the executive who worked for your company is leaving our team, we replace him or her with no costs
- You don’t need to care about extra costs, like equipment, tools, training etc.
- We provide Logistics trained executive.
Let’s calculate the annual salary with MFREIGHTS
$12 x 1,800 hours = $21,600
($21,600 / $82,245 x 100) – 100 = 73.7% cheaper than hiring Logistics executives locally
($21,600 / $100,245 x 100) – 100 = 78.5% cheaper than hiring senior Logistics executives locally.