The True Cost of Hiring vs. Partnering with Professional Services for Small Businesses

The Drive - Business & Growth with Dan Nedelko

I often hear in many different different business, the idea of building a team versus hiring a professional services provider and a trusted partner.

A few things to keep in mind:

1. Take into account the true cost of building a team.
2. Understand it’s your time and that is a never ending commitment.
3. Your team may move on, resetting your resources and causing you even more time.
4. Key team members may move on and then you really have to focus on their role and the impact on your business.

In the world of small business ownership, every decision can have a significant impact on your success and bottom line.

One critical decision that often arises is whether to hire an employee or partner with professional services for various business needs. Let’s disect the scenario and look at both options.

The Employee Hiring Scenario

Let’s start by considering the traditional route—hiring an employee. For many small to medium-sized businesses, hiring staff may seem like the natural progression to handle tasks like marketing, payroll, human resources, accounting, bookkeeping, and more.

The Initial Salary

Suppose you decide to hire a marketing manager with 2-3 years of experience. In December 2023, the average starting salary for such a position in Ontario is around $42,000 annually. This amount, however, is just the beginning of your financial commitment.

Recruitment Costs

Recruiting the right employee can be a time-consuming and costly process. On average, it takes about 42 days to find the ideal candidate. During this period, resources are allocated to the recruitment process, adding up to approximately $4,129.

Onboarding and Ramp-Up

After hiring, the employee’s productivity typically remains low during the initial months. This period of onboarding and ramp-up can be conservatively estimated at one additional month’s salary, which is another $3,500.

Paid Time Off

Your employee will likely require paid time off, which typically includes two weeks of vacation and two weeks of sick leave. This adds an extra $3,500 to your yearly expenses.

Payroll Taxes and Benefits

Employers are responsible for payroll taxes, employee benefits, and contributions to health spending accounts (HSAs). Factoring these in, you’re looking at an additional $12,000 annually.

Software and Tools

To equip your employee for success, you’ll need various software tools, such as CRM systems, project management tools, and design software. A conservative estimate for these expenses is $1,000 per month or $12,000 per year.

Total Cost of Hiring an Employee

Summing up all these costs, the true cost of hiring one employee in this scenario comes to a staggering $84,649 annually, nearly double the initial salary.

The Alternative: Partnering with Professional Services

Now, let’s shift our focus to the alternative—partnering with professional services. Instead of hiring an employee, you can collaborate with trusted partners who specialize in areas like marketing, payroll, human resources, accounting, bookkeeping, and more.

Cost Predictability

One significant advantage of partnering with professional services is cost predictability. You can typically negotiate a retainer fee, which remains consistent throughout the partnership, making it easier to budget and plan for your business expenses.

Expertise and Experience

Professional service providers often have years of experience and a team of specialists at their disposal. They bring industry-specific knowledge, best practices, and a track record of success to your business.

No Onboarding or Ramp-Up Period

When you work with professionals, there’s no need for an onboarding or ramp-up period. They’re ready to hit the ground running from day one, delivering immediate value to your business.

No Employee-Related Costs

Partnering with professional services eliminates the need to worry about payroll taxes, benefits, or employee-related costs. You pay a fixed fee for their expertise, and they handle the rest.

Focus on Your Core Business

By outsourcing non-core functions to professionals, you can focus on what you do best—growing your business and serving your clients.

Should You Hire Internally or Find a Partner?

In conclusion, while hiring an employee may seem like the obvious choice for small businesses, it’s essential to consider the hidden costs and complexities involved. Partnering with professional services offers cost predictability, expertise, and a streamlined approach to meeting your business needs.

The decision ultimately comes down to whether you want to take on the responsibilities and costs associated with hiring, or if you’d prefer to leverage the skills and experience of trusted professionals. In many cases, the latter proves to be the more efficient and cost-effective solution for small to medium-sized businesses, but that’s not always the case. There are no silver bullets.

When evaluating the true cost of hiring versus partnering, it’s clear that the value of professional services can far outweigh the expenses of hiring and maintaining an employee.

As small business owners and entrepreneurs, we should always be building a network of trusted advisors and service providers to help us navigate the challenges of growing our businesses.