As your business grows, you could find there’s too much work to handle while keeping your day job. And, if you sell physical goods, you might run out of room to store and prepare those items at home.
At this stage, your choices can come down to enlisting family members or hiring employees and perhaps renting warehouse space, or finding an outsourcer (also called a fulfillment company).
An outsourcer can handle warehousing of your products, assembly, packaging, fulfillment, and most customer service requests. Depending on your product, you may still need to provide frequent guidance about handling individual customer service issues.
The outsourcer will likely charge a small fixed fee every month (say, for phone equipment) plus variable fees that depend on the number of items assembled and shipped, and the number of customer calls answered.
A good outsourcer can bring several benefits.
- You’ll have vastly fewer management and record keeping headaches compared to hiring employees and renting warehouse space
- Because most of the fees will depend on the quantity of items shipped, you’ll have far fewer fixed costs to worry about as revenues change
- The outsourcer should already have trained staff and nearly all the equipment you’ll need, so setup and training could be much easier
However there are also some disadvantages.
- Should the outsourcer’s staff, business terms or work quality change significantly you could find it difficult to replace the service
- Outsourcers work for profit, so they’ll almost certainly cost more in the long run than handling the work in-house
Your choice of outsourcer – and whether to use an outsourcer at all – is absolutely critical to your business. Start by searching online for fulfillment companies that are close enough that you can help with setup, training, and taking physical inventory a few times per year.
It’s essential to meet with management at each potential outsourcer, tour the facility, and get a feeling of whether you’ll get the attention you need.
Most importantly, get at least three references of other businesses who use each outsourcer candidate. Call each business owner, and ask that they, too, give you the name of another company you can call for a reference.
Prepare a list of questions to ask each reference and write down the responses. It pays to ask as many questions as time allows, for example:
- How did you first find out about this outsourcer?
- How long have you worked with them?
- How many of your shipments and calls do they handle per day?
- What can you tell me about the quality of their work in general?
- How promptly have they fulfilled your orders so far?
- How well do they communicate with your customers by phone? Email?
- How is the quality of their communication with you?
- What can you share about their management, and any staff turnover?
- What have been your biggest surprises working with this company?
- Have you worked with other outsourcers? How do they compare?
- Is there anything else I should know about the outsourcer?
- Are there other companies I might call who have used this outsourcer?
Should you find the right candidate, be sure that you both sign a letter that covers obligations and costs, confidentiality, protection of customers’ personal data, termination, and other critical points.
Use of an outsourcer isn’t for everyone. One of my former coworkers created a successful business by first bringing on family members, then renting a warehouse, then hiring full-time staff and quitting his day job.
Next, we’ll cover strategies to manage your money as your business grows.