What is the True Cost of Outsourcing? | Connect Outsourcing

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What is the True Cost of Outsourcing?

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What is the True Cost of Outsourcing?

If you have considered outsourcing, you have probably wondered about the real cost savings your practice can make.

At Connect we understand that our clients need to be sure that outsourcing makes sense for their practice both financially and in the smooth running of the practice.

But not all outsourcing options are the same, and there are a few hidden costs that can come with some offers. In this White Paper we will address the true cost of outsourcing with the current options in the market today.

Comparing the models

Model one – BPO Outsourcing

One of the main models of outsourcing available in the market today is known as BPO, or business process outsourcing. In this model you outsource your junior accounting roles to a country with a cheaper labour force. Most often this is the Philippines, but it may be India or Vietnam. In this example we outline the process for the Philippines.

How does BPO work?

On the surface this outsourcing model looks  pretty good. It works like this:

1. You pay an outsourcing company a fee to source suitable candidates from the local labour market in the Philippines. You decide on the role and duties you want the candidates to fill, how much experience you want them to have, and what you are prepared to pay them. The outsourcing company acts as a recruitment agency and will place an ad on your behalf in job sites in the Philippines (just like advertising on SEEK in Australia).

2. The outsourcing company narrows down the best candidates and sends the applications on to you. Candidates are usually accounting graduates with at least two years of work experience. You then assess the CVs and interview your chosen candidates through Skype the same way you would to recruit your internal team.

The candidate interview and recruitment process takes about two hours

“We filled in a form to describe who we were looking for and the skill level we wanted. Within a week we were given three candidates to interview. Our outsourcing company did the pre- interview process including background checks and reference checks before we met with them. The interviews with each candidate were quite quick, but we learnt we had to act fast as they were also shortlisted for many other roles at the same time.”

3. Once you’ve chosen your preferred candidate, you sign an employment contract with them. You employ them at a cost that is usually a bit less than 50% of your local staff salary. For example, if you were paying a junior in your office a salary of $60,000, you could employ someone in the Philippines for around $25,000.

4. You also sign a management contract with the outsourcing company. Your new employee will move into the outsourcing company’s office, which has a secure premises with high-speed internet. You pay the outsourcing company an ongoing “seat fee” to manage this.

5. Once the new employee starts working for you, you need to spend time training them to be fluent in your work practices and in understanding the tax system so they can be a useful member of your team.

Fixed-cost summary for the BPO model

  • Average Recruitment fee $2000
  • Salary: Junior 2 years’ experience $ 18,000 to “Senior “ (5 years’ experience) $25,000
  • Monthly Seat fee $700  x 12 = $8400

Yearly fixed cost: $26,400 – $33,400

So now we have covered the theory, how does the BPO model work in practice?

We asked two Connect clients, Maria Bowman from Advantage Accounting and Paul Martin from Paul Martin CA, how they found the process of outsourcing to the Philippines. Bowman says she really didn’t factor into the cost how much time her business would have to spend on training and administration.

“I initially hired three Filipino staff,” she says. “They had one week of training from the outsourcing company – we got to choose from modules such as Xero certification and GST. After this we allocated a senior accountant to begin training them in our tax laws. He probably spent about three-quarters of his time in the first month training them in our systems. One of our admin team also spent about 80 hours in the first month helping them with all the work paper protocols. After the first month, my team were still probably spending an hour or two per day coaching them.”   

Martin says another thing they don’t tell you about the BPO model is that Filipino staff will frequently jump ship for a better job offer.

“As my Filipino staff became better qualified through working with me they were likely to be poached by other firms recruiting in the same process,” he says. “We learnt that in the Philippines there is a culture of staff expecting to leave after two or three years. We had quite a bit of staff turnover, and each time I replaced someone I had to travel back to the Philippines to train the new person.”

Managing Employees

There are also some additional employment management issues that are not obvious in this model around staff leave and expectations. “Our business shuts down in December and January, so we had very little work for the Filipino staff to do,” says Martin. “They would come back on 2nd of January with nothing to do for two weeks and I would pay for it!”

Bowman also ran into issues with the fluctuating exchange rate. “We paid our outsourcing company in AUD, which was then converted into Philippine pesos to pay the staff their local wages,” she says. “This meant we were exposed to fluctuations and risk from the currency exchange.”

Of course, there’s more to outsourcing than just cost considerations. You’ll also need to think about quality of service and timeliness of delivery.

Clients who have used the BPO model have had some issues with quality of service. “The outsourced employees were very smart and well-qualified,” says Martin. “But it was like hiring a graduate, because they didn’t know how accounting really works in Australia.”

Bowman echoes this concern around level of experience. “I found that what qualified in recruitment terms as a senior in the Philippines is at best probably in Australian terms a junior,” she says. “Often their local experience is not equivalent to those on an Australian career path.”

Another factor to take into consideration is that Filipino staff usually can only do compliance to a draft stage, so they require a senior accountant to review the work papers.

Also, when it comes to timeliness of delivery, your Filipino staff can only work as fast as anyone on your own team. If you suddenly need more capacity, you will have a lengthy training process ahead of you before you can scale up your remote team. This is a problem we’ve managed to solve at Connect.

Training and onboarding time broken down:

On average, Maria’s and Paul’s senior staff spent 120 hours in the first month (training outsourced staff in Australian tax law) and around 10 hours after that per month.

Admin staff spent 80 hours in the first month (establishing systems and protocols) and about 10 hours a month after that.

The hidden costs of the BPO model are the 230 unbillable senior accounting hours, and 190 unbillable admin hours spent training your Filipino staff!

The hidden costs of BPO in a nutshell:

  • Ongoing recruitment fees
  • Seat fees
  • Many unbillable hours of your time to manage and train your offshore staff
  • Time spent for your local staff to review and “double handle” the remote team’s work while they are learning the processes
  • Inefficiencies around off-peak times such as the Christmas break and end of tax season where you still have to employ staff to “twiddle their thumbs” until your practice comes back to work.

How do we do things differently at Connect?

Instead of recruiting an accounting graduate or junior accountant to work for you, we have our own permanent team of 800 fully qualified accountants.

We set up our company over 10 years ago. Our founders include Australian CA’s with many years’ experience in managing their own accounting firms, so we understand first-hand the stresses and trials of running a busy practice.

We offer great salaries and attractive packages to recruit the best accountants in India, where our company is based. Once they’ve been through our Australian tax training programmes, they join one of our work hubs, paired with senior accountants to get them up to speed.

We invest in quarterly training programmes for all our staff, covering everything from all of the latest software or product upgrades from Xero and MYOB to any new tax laws and changes that the IRD release.

Our process:

1. You send us some pilot jobs to trial us. We set up the logins and access for our team and complete the work within two weeks to review stage.

2. You pay us on completion of the job.

3. Once you are happy with our quality, price, and process we work out how much work you will require so we can allocate you a team at the right size to be able to manage your work.

4. We then allocate you a team leader as your main point of contact. You will have the same team of accountants going forward working with your firm. 

What are the advantages of the Connect Outsourcing model?

  • Working with us, you’ll get a dedicated team to work with you on your business.
  • You’ll get the same team allocated to your firm, so they’ll get to know you and your business protocols.
  • We allocate you the right number of people for the job depending on how much work you have. This flexibility means we can do more for you during the busy periods, and less during the downtime. You only pay when you actually need work done.
  • The team is made up of both junior and senior accountants, including a review team. This means we can produce work to a New Zealand standard from the very first job.
  • Because we offer our compliance services on a per-job basis, there is no increase in your overheads as you are not hiring us as an employee.
  • We can work on either a fixed-fee or a percentage per compliance job. (Usually this will be 25% of the fees you charge on to your clients.)
  • You pay us when the job is completed, saving your cashflow.
  • Even better, we don’t need any time to learn what to do. Our team are experienced in Australian tax law and it only takes us a couple of hours to set up the systems we need to get started. 

Want to get started?

All it takes for us to begin is to book in a 15-minute discovery call where you can ask us any questions about the cost and process. Then we can set you up to trial a few jobs with us in a pilot programme.

Contact our team today