Running a business can be a lot of work. You have to constantly juggle countless different tasks, from keeping track of your inventory to managing your finances. And that’s not even counting all the paperwork! It can be tough to keep everything straight, especially if you’re a small business owner or startup with a limited staff. That’s where business process outsourcing (BPO) comes in.
This post will list the most important advantages and disadvantages of BPO. But before we get into that, let’s first take a look at what BPO is and what services it can provide.
What is Business Process Outsourcing (BPO)?
Simply put, business process outsourcing (BPO) means contracting certain business activities and functions to a third-party service provider. BPO is sometimes called subcontracting or externalization.
These services are typically offered by a company that specializes in the specific function you need. They might be based anywhere in the world, from the U.S to overseas.
What Is BPO Used For?
Generally speaking, BPO can be used for any business activity or function that an external service provider can perform. However, we can categorize BPO into two main types of services:
Back Office Outsourcing
This type of BPO involves contracting out non-customer-facing activities, meaning activities that your customers or clients will never see. Common examples include:
- Data entry
- Payroll and HR
- Accounting and bookkeeping
- IT support
- Quality assurance
- Legal services
Front Office Outsourcing
On the other hand, front office outsourcing is the type of BPO that involves delegating customer-facing activities. These typically require more interaction and communication with your customers or clients. They also reflect more directly on your brand. Examples of front office outsourcing include:
- Customer service
- Technical support
- Market research
- Sales / Lead generation
- Cold calling / Appointment setting
Note that some companies choose to outsource both back office and front office activities, while others only outsource one or the other. It all depends on your specific business needs.
What Are The Advantages of BPO?
Many business owners struggle with the decision of whether or not to outsource their business processes. After all, it can be difficult to let go of control and entrust critical tasks to someone else. But when done right, BPO can offer several advantages for your business, including:
One of the most common reasons businesses outsource is to reduce costs. You can save on labor costs, overhead expenses, and other related costs when you outsource a business process. Hiring in-house means you have to pay for your employees’ salaries/benefits and overhead costs like office space, equipment, and supplies. But when you outsource, you can avoid all of these costs.
In addition, there’s no recruiting or training required on your part. The service provider will already have the necessary skills and experience to get the job done right. And if you outsource to a company in a country with a lower cost of living, you can save even more money, although you might sacrifice quality.
When it comes to BPO, especially front office outsourcing, you can tap into the expertise and experience of the service provider. You don’t want just anyone handling your customer service or sales. You need someone who knows what they’re doing and will maintain your brand image.
A good BPO provider will have a team of experts in their respective fields. They’ll also keep up with the latest trends, tools, and technologies so that they can provide optimal service for your business. In addition, a BPO provider will have the infrastructure in place to support your business needs. If you start scaling faster than expected, they’ll be able to keep up.
Many startups decide to do everything themselves. You’ll often see the CEO or founder wearing multiple hats, doing everything from sales to customer service to accounting. But as your business grows, you’ll quickly realize that this isn’t sustainable. You can’t do everything and do it all well.
Overworking yourself or your team can lead to costly mistakes and a drop in quality. Outsourcing can help improve the efficiency of your business by allowing you to focus on your core competencies.
Another advantage of outsourcing is that it can give you more flexibility. When you outsource, you can choose to scale up or down as needed. For example, starting a new marketing campaign might require more customer service support to handle the influx of calls and inquiries.
Or let’s say your business is seasonal and you only need extra help during peak periods. Outsourcing can allow you to adjust your workforce as needed without the hassle and expense of hiring and training temporary employees.
Finally, BPO can lead to an increase in productivity. This is because your employees will have more time to focus on their core competencies and the tasks they’re good at. They won’t be bogged down by non-core functions that they’re not skilled at or take up too much of their time.
In addition, by outsourcing, you can avoid the peaks and valleys that come with having a fluctuating workforce. When you have in-house employees, there will always be times when someone is out sick, on vacation, or taking a leave of absence. This can lead to reduced productivity and strained resources.
The Disadvantages of BPO
While business process outsourcing can offer many advantages, there are also some risks to consider. While these are minimal compared to the benefits, they’re still important to be aware of.
The first is the risk of data breaches. When you outsource, you’re essentially giving third-party access to your sensitive data. This includes customer information, financial records, and other confidential data. While most BPO providers have strict security measures in place, there’s always the possibility of a data breach.
To mitigate this risk, do your due diligence when choosing a BPO provider. Research their security measures and ensure they align with industry standards. You should also have a written agreement outlining the conditions under which they can use your data and what will happen in the event of a data breach.
Another risk to consider is the possibility of communication difficulties. When you outsource, you might end up working with people who are in a different time zone or speak a foreign language. This can make it challenging to communicate your needs and expectations.
To avoid this, choose a BPO provider with experience working with companies in your industry. You should also schedule regular check-ins and performance reviews to ensure everyone is on the same page.
Outsourcing can also lead to hidden costs. For example, if you outsource customer service, you might have to pay for the cost of your call center’s phone lines. Or, if you outsource accounting, you might have to pay fees for transaction processing.
Make sure to hire a BPO provider that’s transparent about its pricing. You should also have a written agreement in place that outlines all of the costs associated with the services you’re outsourcing.
Despite these risks, business process outsourcing can be a great way to improve your company’s overall efficiency and bottom line.
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