Website Income
Shares

How Cheap Outsourcing Can Cost You More

After a couple months of trying to solve a productivity problem in one part of my team I have come to the realization that my “cheap” nature has cost me a lot of money recently!

cheap-vs-frugal-outsourcing

The problem was with my domain finding team. The idea with my team set up is that I was to use lower cost labour(Philippines, Bangladesh VA’s with weaker English) to do the main leg work finding domain while my more expensive team member(18$/hr) would complete the final QC checks.

This strategy seemed to work well for awhile however the set up ran into two limitations…

  1. Number of domain they were able to find capped out at 200/month
  2. For “difficult” niches the turnaround time was longer than promised for customers.


Consequence

As a result of several orders taking longer than promised I have had to refund payments and in one case a large order.

Plus, because of the speed of domain finding over the last month I have not been able to accept done of your private blog network customers (yet).

The total cost due to refunds and loss of sales is over $10k!

Changes

Because of my resistance to bring on higher paid help and move work off of my non English speaking VA’s it cost me a few existing customers and new ones!

The changes I have made are relatively straightforward…

  • Promoted my most experienced English speaking domain finding expert to be the team manager responsible for hiring and training similar English speaking VA’s.
  • My VA’s will continue finding domains but will take on the easier orders with the my higher quality domain finding team being responsible for making sure each order is completed.
  • In addition I have added in a bonus system where my VA’s when they find a domain that gets approved by my QC team will receive a bonus but when they find a domain that gets rejected will receive a much small penalty. The balance will never go negative and is being paid out weekly.

NOTE – This bonus will only increase how much a team member gets paid…if someone finds 10 domains and 6 are good while 4 are bad they will receive a bonus of (6x$1 – 4x$0.25) = $5. Even if someone found 10 BAD domains the bonus would be (-10x$0.25 = -$2.5 = $0Bonus) – Bonus will never be negative and is zero’d out each week. (these aren’t the real numbers for the bonus structure)

Learning

“cheap” is not always better…if I had been honest with myself looking at the combined relationship of cost, revenue and profit I should have realized much earlier that domain finding is the core engine of my services business and not the place to try to save a little money.

So far we are about a week and a half into the changes and the results across the board have been great!

About the Author Jon

I am a 33 year old husband, father of 3, engineer and a huge fan of developing systems to build useful and profitable websites. The reason I build online businesses is to provide financial independence for my family and yours AND so I can spend time outside skiing and biking with my family.
Jon Gillham, Online Entrepreneur

Leave a Comment:

17 comments
Add Your Reply