For hundreds of years real large and successful businesses have understood the advantages of having members of staff work in areas they have come to specialise in. We’ll first analyse some of the Economic theories behind this and then explore some simple examples for an online marketing business and show how successful outsourcing and division of labour can make you over $30 per hour instead of under $9 as a new marketing firm.
The Economics Of Outsourcing And Division Of Labour
For all intents and purposes outsourcing and division of labour achieve the same end result. An area of business for which you are not adequately experienced or skilled is passed to someone who is sufficiently skilled and in theory can do the work so much better than you can that despite their profit it still works out more cost effective for you to have paid them.
“The division of labour … so far as it can be introduced, occasions, in every art, a proportion-able increase of the productive powers of labour.”
Adam Smith, An Enquiry Into The Nature And Causes Of The Wealth Of Nations (New Kindle Edition – Produced by Colin Muir)
Smith, the first great economist explains in the 18th Century that in every case where specialisation and division of labour can be introduced the effects are many multiples of the effect of adding one more person working the same way as the other. The first example he discusses is the work of a pin-maker. At the time this was a relatively challenging task for an individual with dozens of steps ranging from stretching the metal to making the head on the pin. A skilled individual could scarcely have made ten to twenty pins in a day.
Imagine adding a second pin-maker who works in the same way. Between them they would only make forty pins at best. However if one of them focused entirely on stretching the metal and the other on the remaining steps they could perhaps make one hundred pins. Working together and specialising better has hugely improved their productivity.
Applying These Concepts To A Small Online/Work From Home Business
The typical start up Internet marketer will read vast swathes of material about every topic relating to selling products on the Web. Often with little regard for their personal skills and preferences they will attempt to become a master of all trades. This makes them hugely uncompetitive and often confused about how so many much larger and apparently unwieldy businesses are able to beat them on quotes despite having cut their quote down to minimum wage.
This happens purely because of the inefficiencies in switching between several jobs, none of which particularly suit your skills. Let’s imagine a simple task. Our budding online entrepreneur Chis is approached by a Karate School to product a Website, market it online generating business and manage a mailing list. Chris is a good, natural salesman and quickly closes the deal and takes on the work.
The first approach might be to think that as a new business Chris should keep costs down and do everything himself. Chris works out that to design a website from scratch for his WordPress blog will cost him 25 hours of his time. He isn’t very experienced at building templates and the client keeps wasting his time with long discussions about ‘the sharpness of the red’ so it actually takes almost 35 hours.
The Karate instructor has supplied a couple of articles for landing pages encouraging people to join in as Martial Arts is a great way to keep fit. However another 10 articles are needed for the site and another 20 or so to submit as guest posts on dozens of blogs for SEO purposes. Chris doesn’t really know much about writing articles and each one is taking hours. After about sixty hours he’s written his articles and submitted them all to the blogs for posting.
As part of his SEO strategy he also has read he ought to get a bunch of links pointing to the guest posts he’s got online. He busies himself making forum profiles, blog comments and other spurious links. They probably won’t help him an awful lot but in the end take another 30 hours of his time to get a thousand online.
After installing some custom software that he found for free on his server he now has to spent at least 4 hours a month opting people in and out, monitoring readership and providing stats to his client about his mailing list.
The Karate School was paying $1,500 for this project. At the end of the year with 173 hours spent on this project Chris has made $8.67 per hour. With $1,500 in income though he feels pretty good about his new business. Let’s see how much more he could be making.
Remember what we said – Chris is a great salesman. Starting your business doesn’t require you to have all the other skills you don’t have. Just focus on your part of the chain.
Template made by his freelance Web Designer who’s a student in England: $300.
30 reasonable quality articles from an efficient freelancer: $400.
1000 Mixed links from an Indian ‘SEO’ company to the blog posts on guest sites: $90
1/10th Aweber Subscription (He’s bound to get at least 10 clients this year…): $35
Hours spent co-ordinating all his workers and talking to the client: 20 for $33.75 per hour. It’s pretty clear that adding experts to his business has increased his hourly rate and will let him focus on the most important part – finding his next $33.75/hour client rather than working on his next $8.67 hour of hard work doing what he doesn’t really understand.
