Outsourcing in Plain Numbers
Outsourcing in Plain Numbers

How John the freelancer became John the business man through Outsourcing

Meet John, he is an experienced developer who works as a freelancer, getting his work from bidding in several on-line marketplaces in search for small and medium size projects that involve the development, bug fixing or enhancement of apps and websites.

John lives in the U.S., near Elizabeth New Jersey and has a wife and two kids. His wife works a “traditional job” at an insurance company and brings home every month around $1200 in wages.

Year to date John’s personal weekly calendar looks like this:

Let’s start by looking at John’s family as an enterprise (since he is an entrepreneur) and raise John’s Inc P&L (Profit and Loss) numbers.

To begin with, John Inc works a total of 57 hours per week, meaning 228 work hours per month.

From those, 32 hours (or 8 work hours per week) are dedicated to gain new business (meaning sales activities), which account for 14% of the monthly work time.

In order to reach a “Break Even” status (meaning he won’t be making any profit but will have enough revenue to cover his expenses), John Inc P&L balance sheet needs to look like this:

Interpreting the table above; John Inc makes every month in average $1678 in revenue (having given around 10% at a discount to get those deals) and having spent $235.51 in sales.

How do we get this last number?

As we have seen before 32 hours a week (128 hours per month) are dedicated to going about the marketplaces and bid for opportunities. Reaching a break even means a monthly revenue of $1678 so, the Cost Rate per hour is of $1678 divided by the total number of work hours of 228 hours. Therefore, John’s Inc Cost Rate per hour is $7.36.

Now multiplying $7.36 by the 128 hours dedicated to sales activities, one gets the Cost of Sales which of $235.51.

No matter how much John tried he could not make time stretch, and he needed to maintain his personal time as well as due care and attention to his family, but hiring is completely out of the question since he barely makes enough revenue to cover the expenses.

So, what to do?

One day John looked at the mirror and said to himself:

  • If I am a freelancer, why not to Outsource the sales activity to someone who is great at it and use that time for something that I am able to aggregate value through my expertise? There are some Virtual Assistants (VAs) who’s hourly rates are lower than my Cost-Hour Rate, so not only will I spend less than if I am doing it, as also, I will have that time slot available to do something else?!

John used the same marketplaces to look for, chose and hire a VA who invoices $4 per work hour. Having decided not to disinvest in the Sales effort, John transformed his previous 32 hours per month dedicated to sales activities at an hourly rate of $7.36 to an amount of 59 hours at the hourly rate of $4.

Having a VA full time going through all the existing opportunities in the marketplaces and bidding on the most relevant ones, led John’s Inc to grow it’s business and to hiring two additional freelancers with an Outsourcing hour rate of $5, to act as developers while John now dedicates himself to establishing Client Relationship Management (establishing long-term clients) and managing the freelancer’s work as well as (when absolutely needed) solving some hard to fix bugs.

So John Inc P&L table now looks a little different

And John’s weekly schedule looks like this

The revenue forecast of $5000 upon having started to use the freelancers is not “out of the blue”; in fact it is an estimation that does not take into account any synergy factors, merely representing the following direct mathematical proportion: If John alone was able to dedicate 57 work hours to his sales and development effort getting a revenue of $1678 from it, now with a total of 171 hours per week that derive from his work and the three freelancers, he will get $5000 in revenue.

The synergy here takes place in two planes; in one hand there will be a dedicated person to full-time scrutiny the best business opportunities and on the other hand John is able now to dedicate a full 27 work hours per week to establishing and solidifying the relationship with his clients through direct customer care (not selling something but supporting, which leads to voluntary buying by customer side).

At the beginning, John dedicated 14% of his work time to sales activities whereas now he is able to have 47% of John Inc work time dedicated to Sales and CRM.

Join John’s experience and get to know a brighter world

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