Outsourcing Savings Calculator
Use this tool to quickly estimate the potential cost savings (or additional cost) by comparing your current internal expenses for a task or function against the cost of outsourcing it.
Enter the total annual cost of performing the task internally and the total annual cost quoted by an outsourcing provider.
Enter Cost Details (Annual)
Understanding Outsourcing Savings
Outsourcing involves contracting out a specific task, function, or process to an external third-party provider. A primary driver for outsourcing is often potential cost savings, although factors like access to specialized skills, increased efficiency, and focus on core competencies are also important.
This simple calculator helps you compare the direct financial costs. A full outsourcing analysis would also consider indirect costs (like managing the vendor relationship) and potential benefits (like improved quality or scalability).
The Basic Formula
Savings = Internal Cost - Outsourcing Cost
A positive result indicates savings, while a negative result indicates an increased cost compared to keeping the function internal.
Outsourcing Savings Examples
Click on an example to see the scenario and calculation:
Example 1: Standard Task Outsourcing
Scenario: Calculating the potential savings for outsourcing customer support.
Known Values:
- Internal Cost (Annual): $50,000 (salary, benefits, overhead for one employee)
- Outsourcing Cost (Annual): $35,000 (vendor fee)
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $50,000 - $35,000
Result: Savings = $15,000
Conclusion: Outsourcing this task is projected to save $15,000 annually.
Example 2: IT Support
Scenario: Evaluating savings for outsourcing IT helpdesk functions.
Known Values:
- Internal Cost (Annual): $80,000
- Outsourcing Cost (Annual): $75,000
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $80,000 - $75,000
Result: Savings = $5,000
Conclusion: Outsourcing IT helpdesk is projected to save $5,000 annually.
Example 3: Negative Savings (Increased Cost)
Scenario: Comparing costs for a specialized marketing task where the vendor is more expensive.
Known Values:
- Internal Cost (Annual): $60,000
- Outsourcing Cost (Annual): $70,000
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $60,000 - $70,000
Result: Savings = -$10,000
Conclusion: Outsourcing this task is projected to cost an *additional* $10,000 annually.
Example 4: Small Business Task
Scenario: A small business owner considers outsourcing bookkeeping.
Known Values:
- Internal Cost (Annual): $10,000 (estimated value of owner's time + software)
- Outsourcing Cost (Annual): $8,500 (bookkeeper service fee)
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $10,000 - $8,500
Result: Savings = $1,500
Conclusion: Outsourcing bookkeeping is projected to save the business $1,500 annually.
Example 5: Manufacturing Process
Scenario: A larger company considers outsourcing a non-core manufacturing step.
Known Values:
- Internal Cost (Annual): $500,000 (labor, materials, equipment maintenance, space)
- Outsourcing Cost (Annual): $480,000 (supplier contract cost)
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $500,000 - $480,000
Result: Savings = $20,000
Conclusion: Outsourcing this process is projected to save $20,000 annually.
Example 6: Content Writing
Scenario: Comparing an in-house writer vs. freelance/agency costs for blog content.
Known Values:
- Internal Cost (Annual): $45,000
- Outsourcing Cost (Annual): $40,000
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $45,000 - $40,000
Result: Savings = $5,000
Conclusion: Outsourcing content writing is projected to save $5,000 annually.
Example 7: Human Resources Admin
Scenario: Considering outsourcing payroll or benefits administration.
Known Values:
- Internal Cost (Annual): $30,000 (portion of HR salary/software)
- Outsourcing Cost (Annual): $28,000 (payroll service fee)
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $30,000 - $28,000
Result: Savings = $2,000
Conclusion: Outsourcing HR admin is projected to save $2,000 annually.
Example 8: Zero Savings (Break-Even)
Scenario: Comparing costs for a task where internal and external costs are identical.
Known Values:
- Internal Cost (Annual): $25,000
- Outsourcing Cost (Annual): $25,000
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $25,000 - $25,000
Result: Savings = $0
Conclusion: Outsourcing this task is projected to break even on direct costs. Other factors would drive the decision.
Example 9: Sales Lead Generation
Scenario: Outsourcing lead generation vs. internal efforts.
Known Values:
- Internal Cost (Annual): $120,000 (sales salaries portion + marketing spend)
- Outsourcing Cost (Annual): $150,000 (lead gen agency fee)
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $120,000 - $150,000
Result: Savings = -$30,000
Conclusion: Outsourcing lead generation is projected to cost an additional $30,000 annually, based on these direct costs.
Example 10: Maintenance & Repair
Scenario: Comparing in-house maintenance crew vs. external contractors.
Known Values:
- Internal Cost (Annual): $90,000
- Outsourcing Cost (Annual): $82,000
Formula: Savings = Internal Cost - Outsourcing Cost
Calculation: Savings = $90,000 - $82,000
Result: Savings = $8,000
Conclusion: Outsourcing maintenance is projected to save $8,000 annually.
Frequently Asked Questions about Outsourcing Savings
1. What is the purpose of this calculator?
This calculator helps you compare the direct financial cost of performing a task or function internally versus hiring an external provider (outsourcing).
2. What should I include in "Internal Cost"?
Internal Cost should represent the total cost associated with performing the specific task internally. This typically includes employee salaries, benefits, payroll taxes, allocated overhead (office space, utilities), equipment costs, software licenses, and any other direct costs tied to that function.
3. What should I include in "Outsourcing Cost"?
Outsourcing Cost should include the total fee or contract cost charged by the outsourcing provider for performing the task over the same period (usually annually). This might be a flat fee, per-transaction cost, or hourly rate converted to an annual estimate.
4. What does a positive result mean?
A positive result indicates that the Internal Cost is higher than the Outsourcing Cost, suggesting a potential cost saving by outsourcing the task.
5. What does a negative result mean?
A negative result indicates that the Outsourcing Cost is higher than the Internal Cost. This means outsourcing is projected to cost *more* than keeping the function internal, based on the direct costs entered.
6. Does this calculator consider indirect costs or benefits?
No, this is a basic calculator focused only on direct financial costs. A full outsourcing analysis would also consider indirect costs (like vendor management time, communication challenges, potential quality issues) and benefits (like scalability, access to expertise, freeing up internal resources).
7. Should I always outsource if the calculator shows positive savings?
Not necessarily. While cost is a major factor, the decision to outsource should also consider strategic factors like quality control, data security, communication, integration with existing processes, and long-term goals.
8. What units should I use for currency?
Use any consistent currency unit for both inputs (e.g., USD, EUR, GBP). The result will be in the same currency unit. Do not include currency symbols in the input fields themselves.
9. What time period does this calculator use?
The calculator assumes you are entering annual costs for both internal and outsourcing options. Ensure your figures represent a full year for accurate comparison.
10. Can I use this for one-time projects?
Yes, you can use it for one-time projects by entering the total estimated internal cost for the project and the total quoted outsourcing cost for the same project.
