Detailed Annual Outsourcing Savings Calculator
This calculator helps you estimate potential annual cost savings by comparing granular in-house expenses versus outsourcing costs for a specific task or function over a one-year period.
Enter the estimated annual costs for each category in both the In-House and Outsourced sections. All values should be non-negative numbers.
Enter Estimated Annual Costs
In-House Annual Costs
Outsourcing Annual Costs
Understanding Outsourcing Cost Components
Accurately comparing the costs of keeping a function in-house versus outsourcing it requires looking beyond just the obvious line items. This calculator breaks down typical costs into categories:
- Employee Salary/Benefits: The direct cost of paying your staff, including salary, health insurance, retirement contributions, taxes, etc.
- Allocated Overhead: A portion of your general business operating costs (rent, utilities, IT, administrative support) that should be assigned to the space/resources used by the in-house function.
- Training & Development: Costs associated with keeping your internal team's skills up-to-date, attending conferences, software training, etc.
- Internal Management Cost (In-House): The cost of the time spent by managers or other internal staff supervising the in-house team performing the task.
- One-Time In-House Setup: Initial investments needed to perform the task internally, like hiring fees, purchasing software licenses, or buying equipment.
- Vendor Service Fee (Annual): The primary cost charged by the outsourcing provider for their services over a year.
- Internal Management Cost (Outsourced): The cost of the time spent by your internal team managing the relationship with the outsourcing vendor (communication, quality checks, contract management).
- One-Time Transition Fee: Costs incurred during the process of moving the task to an external provider, which might include vendor setup fees, data migration costs, or temporary overlap costs.
Using annual estimates helps provide a clear picture of the cost impact over a typical operational period.
Outsourcing Savings Examples
Click on an example to see sample inputs and expected outputs:
Example 1: Significant Annual Savings
Scenario: Comparing in-house customer support vs. outsourcing to a lower-cost region.
Inputs:
- In-House Salary/Benefits: $50,000
- In-House Overhead: $10,000
- In-House Training: $3,000
- In-House Internal Management: $5,000
- One-Time In-House Setup: $2,000
- Outsourced Vendor Fee (Annual): $30,000
- Outsourced Internal Management: $4,000
- One-Time Transition Fee: $1,500
Calculation:
- Total In-House Annual = 50000 + 10000 + 3000 + 5000 + 2000 = $70,000
- Total Outsourced Annual = 30000 + 4000 + 1500 = $35,500
- Annual Savings = 70000 - 35500 = $34,500
Output: Total Annual In-House Cost: $70,000.00, Total Annual Outsourced Cost: $35,500.00, Calculated Annual Savings: $34,500.00
Example 2: Moderate Annual Savings
Scenario: Outsourcing IT helpdesk compared to hiring one more internal person.
Inputs:
- In-House Salary/Benefits: $70,000
- In-House Overhead: $12,000
- In-House Training: $4,000
- In-House Internal Management: $6,000
- One-Time In-House Setup: $3,000
- Outsourced Vendor Fee (Annual): $60,000
- Outsourced Internal Management: $5,000
- One-Time Transition Fee: $2,000
Calculation:
- Total In-House Annual = 70000 + 12000 + 4000 + 6000 + 3000 = $95,000
- Total Outsourced Annual = 60000 + 5000 + 2000 = $67,000
- Annual Savings = 95000 - 67000 = $28,000
Output: Total Annual In-House Cost: $95,000.00, Total Annual Outsourced Cost: $67,000.00, Calculated Annual Savings: $28,000.00
Example 3: Slight Annual Cost Increase
Scenario: Deciding whether to outsource content writing or hire a freelancer equivalent to a part-time employee.
Inputs:
- In-House Salary/Benefits: $30,000
- In-House Overhead: $5,000
- In-House Training: $1,000
- In-House Internal Management: $3,000
- One-Time In-House Setup: $1,000
- Outsourced Vendor Fee (Annual): $35,000
- Outsourced Internal Management: $2,000
- One-Time Transition Fee: $500
Calculation:
- Total In-House Annual = 30000 + 5000 + 1000 + 3000 + 1000 = $40,000
- Total Outsourced Annual = 35000 + 2000 + 500 = $37,500
- Annual Savings = 40000 - 37500 = $2,500
Output: Total Annual In-House Cost: $40,000.00, Total Annual Outsourced Cost: $37,500.00, Calculated Annual Savings: $2,500.00
Example 4: Annual Cost Increase (Outsourcing is more expensive)
Scenario: Comparing specialized R&D in-house vs. using an external consulting firm.
Inputs:
- In-House Salary/Benefits: $150,000
- In-House Overhead: $25,000
- In-House Training: $10,000
- In-House Internal Management: $10,000
- One-Time In-House Setup: $5,000
- Outsourced Vendor Fee (Annual): $250,000
- Outsourced Internal Management: $15,000
- One-Time Transition Fee: $10,000
Calculation:
- Total In-House Annual = 150000 + 25000 + 10000 + 10000 + 5000 = $200,000
- Total Outsourced Annual = 250000 + 15000 + 10000 = $275,000
- Annual Savings = 200000 - 275000 = -$75,000
Output: Total Annual In-House Cost: $200,000.00, Total Annual Outsourced Cost: $275,000.00, Calculated Annual Cost/Loss: $75,000.00
Example 5: High One-Time Outsourcing Cost
Scenario: Outsourcing a major system migration with high upfront cost vs. internal team handling it over a year.
Inputs:
- In-House Salary/Benefits: $100,000
- In-House Overhead: $15,000
- In-House Training: $5,000
- In-House Internal Management: $8,000
- One-Time In-House Setup: $0
- Outsourced Vendor Fee (Annual): $80,000
- Outsourced Internal Management: $7,000
- One-Time Transition Fee: $50,000
Calculation:
- Total In-House Annual = 100000 + 15000 + 5000 + 8000 + 0 = $128,000
- Total Outsourced Annual = 80000 + 7000 + 50000 = $137,000
- Annual Savings = 128000 - 137000 = -$9,000
Output: Total Annual In-House Cost: $128,000.00, Total Annual Outsourced Cost: $137,000.00, Calculated Annual Cost/Loss: $9,000.00
Example 6: Minimal Management Costs
Scenario: Simple data entry task comparison where management overhead is negligible for both.
Inputs:
- In-House Salary/Benefits: $25,000
- In-House Overhead: $4,000
- In-House Training: $500
- In-House Internal Management: $100
- One-Time In-House Setup: $0
- Outsourced Vendor Fee (Annual): $20,000
- Outsourced Internal Management: $200
- One-Time Transition Fee: $300
Calculation:
- Total In-House Annual = 25000 + 4000 + 500 + 100 + 0 = $29,600
- Total Outsourced Annual = 20000 + 200 + 300 = $20,500
- Annual Savings = 29600 - 20500 = $9,100
Output: Total Annual In-House Cost: $29,600.00, Total Annual Outsourced Cost: $20,500.00, Calculated Annual Savings: $9,100.00
Example 7: High In-House Overhead
Scenario: Comparing a task requiring significant physical space/IT infrastructure in-house vs. remote outsourcing.
Inputs:
- In-House Salary/Benefits: $60,000
- In-House Overhead: $20,000
- In-House Training: $2,000
- In-House Internal Management: $4,000
- One-Time In-House Setup: $1,000
- Outsourced Vendor Fee (Annual): $70,000
- Outsourced Internal Management: $3,000
- One-Time Transition Fee: $1,000
Calculation:
- Total In-House Annual = 60000 + 20000 + 2000 + 4000 + 1000 = $87,000
- Total Outsourced Annual = 70000 + 3000 + 1000 = $74,000
- Annual Savings = 87000 - 74000 = $13,000
Output: Total Annual In-House Cost: $87,000.00, Total Annual Outsourced Cost: $74,000.00, Calculated Annual Savings: $13,000.00
Example 8: Equal Annual Costs (Break-even)
Scenario: Costs are very similar, suggesting cost isn't the primary driver for decision.
Inputs:
- In-House Salary/Benefits: $40,000
- In-House Overhead: $8,000
- In-House Training: $2,000
- In-House Internal Management: $3,000
- One-Time In-House Setup: $1,000
- Outsourced Vendor Fee (Annual): $45,000
- Outsourced Internal Management: $4,000
- One-Time Transition Fee: $1,000
Calculation:
- Total In-House Annual = 40000 + 8000 + 2000 + 3000 + 1000 = $54,000
- Total Outsourced Annual = 45000 + 4000 + 1000 = $50,000
- Annual Savings = 54000 - 50000 = $4,000
Correction: Let's adjust inputs slightly for a closer break-even.
Adjusted Inputs for Break-even:
- In-House Salary/Benefits: $40,000
- In-House Overhead: $8,000
- In-House Training: $2,000
- In-House Internal Management: $3,000
- One-Time In-House Setup: $1,000
- Outsourced Vendor Fee (Annual): $48,000
- Outsourced Internal Management: $4,000
- One-Time Transition Fee: $1,000
Recalculation:
- Total In-House Annual = 40000 + 8000 + 2000 + 3000 + 1000 = $54,000
- Total Outsourced Annual = 48000 + 4000 + 1000 = $53,000
- Annual Savings = 54000 - 53000 = $1,000 (Very close to break-even)
Output (based on adjusted inputs): Total Annual In-House Cost: $54,000.00, Total Annual Outsourced Cost: $53,000.00, Calculated Annual Savings: $1,000.00
(Note: A true $0.00 is rare with realistic numbers, but small savings or loss indicates approximate cost equivalence)
Example 9: High In-House Setup Cost
Scenario: Task requires significant upfront investment in software/equipment if done in-house.
Inputs:
- In-House Salary/Benefits: $50,000
- In-House Overhead: $10,000
- In-House Training: $3,000
- In-House Internal Management: $5,000
- One-Time In-House Setup: $30,000
- Outsourced Vendor Fee (Annual): $60,000
- Outsourced Internal Management: $4,000
- One-Time Transition Fee: $2,000
Calculation:
- Total In-House Annual = 50000 + 10000 + 3000 + 5000 + 30000 = $98,000
- Total Outsourced Annual = 60000 + 4000 + 2000 = $66,000
- Annual Savings = 98000 - 66000 = $32,000
Output: Total Annual In-House Cost: $98,000.00, Total Annual Outsourced Cost: $66,000.00, Calculated Annual Savings: $32,000.00
Example 10: Higher Internal Management for Outsourced Option
Scenario: Outsourcing a complex task requiring significant oversight and communication from internal staff.
Inputs:
- In-House Salary/Benefits: $80,000
- In-House Overhead: $15,000
- In-House Training: $5,000
- In-House Internal Management: $7,000
- One-Time In-House Setup: $2,000
- Outsourced Vendor Fee (Annual): $75,000
- Outsourced Internal Management: $15,000
- One-Time Transition Fee: $3,000
Calculation:
- Total In-House Annual = 80000 + 15000 + 5000 + 7000 + 2000 = $109,000
- Total Outsourced Annual = 75000 + 15000 + 3000 = $93,000
- Annual Savings = 109000 - 93000 = $16,000
Output: Total Annual In-House Cost: $109,000.00, Total Annual Outsourced Cost: $93,000.00, Calculated Annual Savings: $16,000.00
Frequently Asked Questions about Outsourcing Cost Calculation
1. What does "Employee Salary/Benefits" include?
This should be the fully loaded cost of the employee(s) performing the task annually, including gross salary, health insurance, retirement contributions, payroll taxes, workers' compensation, paid time off, etc.
2. How do I estimate "Allocated Overhead"?
Estimate the portion of your total annual overhead costs (rent, utilities, general IT support, etc.) that is directly used or required by the staff or resources dedicated to this specific task. This often requires an internal allocation method.
3. Is "Internal Management Cost (In-House)" different from "Internal Management Cost (Outsourced)"?
Yes. The in-house cost is the estimated value of time managers spend supervising your internal team doing the task. The outsourced cost is the estimated value of time your internal team spends managing the relationship with the external vendor (communication, quality review, performance checks).
4. What counts as "One-Time In-House Setup"?
This includes non-recurring initial costs like recruitment fees for hiring, significant upfront training needed for new hires, or purchasing specialized equipment or software licenses required only if the task stays in-house.
5. What is included in "One-Time Transition Fee" for outsourcing?
This covers costs specifically related to moving the task externally. It might be a setup fee from the vendor, internal costs for data migration, project management for the transition, or temporary double costs if you run both in-house and outsourced processes simultaneously during handover.
6. Does "Vendor Service Fee (Annual)" cover everything the vendor charges?
It should cover their standard recurring service fees for one year. Be sure to include all recurring charges mentioned in the contract. One-time fees should go under "One-Time Transition Fee."
7. What if my costs vary month-to-month?
Estimate the total cost for the full year for each category. If costs fluctuate, use an average or a reasonable yearly projection based on past data or vendor quotes.
8. Does this calculator include non-monetary factors?
No, this calculator focuses purely on direct financial costs over one year. It does not account for intangible factors like potential differences in quality, flexibility, strategic value, risks (security, vendor stability), or the impact on company culture.
9. How does the "Calculated Annual Savings" show if I save money or lose money?
If the number is positive, it represents a projected cost saving by outsourcing compared to keeping it in-house for one year. If the number is negative (or labelled as "Cost/Loss"), it means outsourcing is projected to cost more than keeping the task in-house over that year.
10. Can I use this to compare multiple outsourcing vendors?
Yes, you can use your in-house costs as a baseline and then run the calculator multiple times, inputting the costs for different potential outsourcing vendors to compare each vendor's cost against your in-house option.
