Outsourcing Part 3: Educate Yourself Before Renewing Your Outsourcing Contract

by Ben Schmidt

You don’t know what you don’t know

Every few years, when a contract is approaching its end, that’s a good time to educate yourself on what’s happening with your outsourcing providers to find out whether you’re getting what you paid for and if you’re paying below market rate (good deal), above market rate (bad deal) or the market average (just right).

Review where your dollars are going

For many firms, there’s a significant cash outlay going to these services. Many times we’ve seen that even though a firm’s annual outsourcing spend might be in the seven-figure range, they don’t have a good handle on how that spend is allocated or even what the total spend is.

1. Gather all the materials needed to review your costs
2. Contact various departments to obtain invoices, contracts, and payments made for:
   • Labor
   • Equipment
   • Marketing
   • Word processing
   • Consumables
   • Everything else
3. Reconcile #1 with #2 to verify you‘re getting what you’re paying for

Unearth the market rate

All this investigation can get complicated. Even if you know what you’re spending, without a basis of comparison, you may not know if you have a good deal or a really rotten one.

• Check in with HR for a ballpark on labor costs
• Call a few peers to get their equipment costs
• Compare what you’re paying to the average of what your peers are paying

Conclusion

At the end of the day, expect to pay whatever the market dictates. So, if there are other service providers who can undercut your current provider, that’s something worth investigating.

The only way to find out is to go through the process of discovery:

• Look holistically at your operations using the information you gathered
• Compare your findings to service providers’ responses to your Request for Proposal (RFP)

Even then, don’t expect the first round of offers to hit the mark. There will always be negotiations to get where you want to be, both contractually and financially.

To view the entire series on outsourcing, check out the rest of the posts:

“Outsourcing Part 1: When Re-evaluating Your Outsourcing Contract, Drive the Hard Changes.”

“Outsourcing Part 2: Open RFP Process to get the Best Outsourcing Deal”

“Outsourcing Part 4: I’m Happy with my Service Provider but Can I Do Better?”