May 20, 2022

There are undoubtedly multiple jobs depleting your resources when you might focus on core talents instead, ranging from data entry to payroll to admin. While these types of back office operations are necessary, devoting too much time and money to them is not conducive to staying competitive in today’s market.

Most of the issues within small and medium-sized businesses include:

● Insufficient networks cause slow expansion.

● Large firms that have higher transaction costs.

● Inadequate finances and entrepreneurial energy.

● A lack of financial expertise and qualified personnel.

However, there are many ways a business owner can overcome these challenges. For instance, outsourcing your back office is one of the best solutions. You can outsource most of the work!

What is Back Office Outsourcing?

Like any other type of outsourcing, back office outsourcing is handing over specific responsibilities to a third-party source. You may enhance productivity and cut costs by delegating non-core responsibilities like marketing, accounting, human resources, and IT. This leads to positive growth because you’ll have more room to maximize your team’s abilities.

The above functions are often delegated to a Business Process Outsourcing (BPO) company with superior access to skilled personnel and cutting-edge technology. Making the switch can save you money on various back office expenses that would otherwise affect your profits. This includes, but is not limited to, the following:

● Maintenance and equipment

● Employee retention and benefits

● Office and utility space

● Personnel recruitment and compensation 

● Hardware and software

Your BPO partner could be anywhere, from down the street to across the globe. Both methods have potential advantages and disadvantages. Service organizations, for example, are more reliable and easier to deal with, although being generally more expensive. Offshore outsourcing firms face several distinct obstacles. Among them are:

● Obstacles to communication

● Fears about safety

● Barriers to language and culture

● Issues of law and regulation

Your possibilities for what can be outsourced rely on what your back office already performs. Any non-customer-facing function qualifies. Procurement, analytics, and data entry are examples of more process-driven and resource-intensive jobs.

What are the Benefits of Outsourcing a Back Office?

Many benefits can improve your company’s output and save you and your team time.

Service without interruption

Managing hardware and software has become considerably more complicated as technology has advanced. More than ever, innovative solutions are critical. This includes the capacity to keep your internal processes running smoothly, especially in the IT department.

These difficulties will be handled by an IT outsourcing firm, allowing you to deliver around-the-clock service. Consumers are happier as a result, and company processes are more efficient.

Less Anxiety

You and your employees will be less anxious when the right outsourced service provider executes a sound disaster management and recovery strategy. For people who work with technology, the dangers of a network outage or computer failure are not just physical but also psychological. Data loss, lost productivity, and security issues are all concerns. These fears will vanish if the services are appropriately protected and maintained.

Lower Costs

The primary motive for most organizations to outsource is to increase profits. The infrastructure required to run a back office is costly and time-consuming to build and maintain. Your service provider will cover the costs of employing, training, and paying personnel.

All benefits, compensation, and taxes are included. Equipment, tools, utilities, and office space will all be covered by your outsourcing partner. You’ll have more money to gain a competitive edge and lower your goods or services prices. Alternatively, you might spend the funds saved in departments where expansion is more likely.

Less Risk

There’s no getting around the fact that each business investment carries some risk. A continually moving barrier of local regulations, competitors, market conditions, and technology ensures this. The external team you interact with will take on most of this risk, allowing them to manage better and avoid it.

Security

You can never be too careful when it comes to data security. Consider the following notable data breaches over the last several years:

● The personal information of up to 15 million T-Mobile members was taken.

● Thousands of people’s personal information was exposed after credit card information was taken from Trump properties.

● Attorney-client rights were violated among 70 million convicts due to stolen call logs and recordings.

These are just a few of the data breaches in recent years. Make sure your firm is up to date on the latest security regulations to defend yourself against them. Examine whether you have a security system, the necessary software and whether all desktops and servers have been inspected. These activities need time, money, work, and expertise. You may trust an outsourced service provider to keep you secure and comply with all essential regulations. This will save you much time in the long run.

Productivity

Then maybe the genuine benefit of back office outsourcing is supporting you in reallocating your time and resources to more vital objectives. The foundation is laid by cost savings, while enhanced freedom to focus on critical components propels development. When your employees do what they do best rather than tedious, repetitive duties, they will be happier and more productive.

Top Outsourced Functions for Back Office

Virtually any operation that does not need to be in front of a client or customer can be included in back office outsourcing. Accounting, finance, engineering, virtual assistants, software development, and more fields are included. What tasks are worth your unique circumstances determine outsourcing. Remember that not all aspects of your back office can or should be outsourced. Some services and procedures require a distinctive touch that can only be provided by your internal team. Others involve sensitive information or require specific knowledge that an external team would take too long to learn.

Here are some of the most used outsourced functions and key metrics to measure.

Payroll

Another area where a skilled outsourcing partner might excel is reducing the risk of costly payroll calculation mistakes. In addition to dropping a monotonous activity, you’ll be able to guarantee that employees are paid accurately and on time. Here are some of the best KPIs to track.

Number of error / Accuracy rate: Tax and fee payments at every level (federal, state, county, municipal, etc.) are subject to a range of factors, including: Accurate time tracking for hourly compensation and the application of different leave categories (PTO, maternity, sick leave, bereavement, etc. By keeping track of the number of payroll mistakes by pay period and dividing the number of payroll runs with errors by the total number of payroll runs to get a long-term payroll accuracy percentage.

Overtime: When measuring payroll performance, you may see that your employees constantly post overtime. This might indicate that a team or department’s people need to be reviewed. By adding up the total overtime cost paid out, then analyzing payroll costs by department and team, you can understand better what might be wrong.

Time to run payroll: Even with the most outstanding software, working through each step of the payroll process takes hours. Measuring the length of the payroll process reveals the costs involved and aids in discovering new efficiencies. 

Labor expenses as a percentage of total revenue: Your organization’s personnel expenditures can be calculated by adding your total payroll expenses to your total labor expenses. Many businesses utilize labor costs as their primary benchmarking criterion to keep them as low as feasible. However, it’s vital to highlight the link between investing money in payroll performance improvements and reduced payroll time and cost.

Website management

While most websites have the same aim of making money, the conversion procedure differs from one to the next by first determining your conversion method and objectives. Then, on your web analytics dashboard, pick KPIs that best indicate the success of each conversion phase and income.

Traffic by source: When website traffic increases, few marketers would grumble. It’s a positive indicator if people are viewing your website. Understanding where large traffic fluctuations are coming from, on the other hand, may aid in determining the success of various marketing channels and initiatives.

Unique visitors: By providing this information, you can locate and target warmer leads who have previously visited the website. Because unique visitors return to your website and are more engaged than first-time visitors, they might assist you in figuring out whom you should focus on.

Data management

Understanding the health of your database is key to knowing all your business transactions, query performance, or just general configuration.

Business transactions: ​​These are real-time performance records that actual users are experiencing as they engage with your application and give insight into real-user behavior. Measuring the performance of a business transaction entails recording the transaction’s overall response time and the response times of its constituent levels. To assess normality, compare these reaction times to the baseline that best matches your company’s needs.

Query Performance: The query itself is the most prominent place to look for poor query performance. Queries that take too long to locate the relevant data or return the data might cause issues.

Data Entry

It should be no surprise that data entry is a frequent candidate for back office outsourcing, given its repetitive tendency. But it can also entail some challenging activities, such as information research, identification, and interpretation. The proper supplier will have the skills to ensure that these operations go successfully. Here are some metrics to track its performance.

Consistency: In your databases, there are no inconsistencies. This indicates that if two data from different data sets are compared, they will coincide or sync. For example, the budget for a particular department must be constant throughout the business so that it does not exceed its whole budget. In many circumstances, defined data rules may be used to ensure uniformity. Examples of consistency metrics in data entry are: standard deviation, range, or variance. 

Completeness: Data records are “complete,” meaning they include enough information to derive conclusions. Tracking this data quality measure entails locating any fields with missing or partial values. To create a high-quality data set, all data entries must be complete.

Accuracy: Data is error-free and precise. There are no errors when a measured value equals the real (true) value, such as obsolete info, repetitions, or typos. Your objective should be to continuously improve the accuracy of your data as your datasets expand in size.

Auditability: Information is available, and changes may be tracked. Is it possible to go down into your data and view a history of updates? Determining quality in this measure entails recording the percentage of fields where it is impossible to tell what, when, and who performed the updates.

IT Support

IT is one of the most crucial back office activities to outsource. This is especially true for post-sales or technical support, which is critical for monitoring client interactions and gaining valuable insights that drive development. Your outsourced IT partner will have access to the most up-to-date technologies, trends, and security and recovery solutions. Some specific tasks are desktop support, network management, app development, or hardware and software servicing. 

Change Success Rate: Increase the number of successful change executions. Opinions on what a failed reform means remain varied. It essentially refers to any modification that does not achieve its goals or proceed as intended.

Lost Business Hours: Most IT departments monitor uptime to assess the overall effectiveness of their IT service desks. However, even when service availability levels are high, the pain of lost business is not always apparent. For example, even if service uptime is 99.9%, the organization still loses more than eight hours each year. Tracking missed business hours emphasizes the loss and its impact on the company.

Infrastructure Stability: IT help desks must monitor the following to evaluate and monitor infrastructure stability accurately:

● Reduction in the number of problematic assets as a percentage

● The percentage decrease in the number of significant occurrences

Ticket Volume Trends: The goal is to reduce the number of problems and service requests and equip the IT staff to handle the influx of tickets. Determine peaks and valleys to improve resource allocation and technician demand. Improve your staffing model. Create training sessions for your IT support team. Assess service request trends and plan for asset and license purchases.

Accounting

Accounting is, without a doubt, one of the most critical back office activities and one that can be outsourced. There are many KPIs that you can measure within this department. Let’s have a look at some of the most important ones.

Electronic Invoices Rate (as a Percentage of Total Invoices): When compared to paper invoices, electronic invoices are far faster to process. Encourage suppliers to submit electronic invoices to save time and money for your accounts payable department. 

Discounts for paying within the discount period: Paying within the discount period and according to the agreed-upon credit conditions might result in significant discounts and increased profitability for your organization. Accounting supervisors can measure how successfully the accounts payable department adheres to credit conditions by tracking the number of discounts obtained vs. discounts lost. 

Invoices processed per full-time employee (FTE) each year: This important performance measure shows the effectiveness of your accounts payable department staff. A low score indicates that accounts payable procedures may be improved or that workers could benefit from further training.

Payment Error Rate: The accuracy of the accounts payable department is measured by this vital performance metric. Common problems are improper account numbers, incorrect payment amounts, and duplicate payments. Payment mistake rates over a certain threshold indicate an issue with accounts payable employees or processes.

Cost per Invoice: This KPI for accounting managers shows the average cost of processing a single invoice from receipt to payment. A high cost per invoice indicates that the accounts payable department is inefficient.

How to Pick the Right Back Office Outsourcing Company

The first thing is to ensure the provider shares your values as a company and corresponds with your aims. Saving money should not be the only consideration. Examine the provider’s track record to discover if they’ve previously worked with businesses in your field. To secure long-term stability, you require a well-funded partner. Some of the characteristics that you should have in mind are, for example, low or reasonable fees, financial stability, excellent communication, great staff and infrastructure, and good work history. 

Location is also crucial because there are risks of a low economic climate, wars, or political instability. Here’s how to pick your outsourcing partner in more detail.

Understand Your Industry

You need to know exactly what you want from a service before you start shopping for one. Scope of work documents can be used to do this. If any of that seems too complicated, as it frequently does with back office activities, you might begin by answering a few easy questions.

● How much do you want to spend?

● What is the top solution?

● What tasks does your company want to outsource?

● What are your quality standards?

You may create a clear plan for outsourcing a specific service from this. It’s vital to remember that outsourcing isn’t a one-size-fits-all solution. You can’t expect your partner to be as familiar with your job as you are right away, so you must be specific and detailed with your requirements.

Check Their Reputation

You don’t want a partner that consistently breaks commitments, is nasty to your employees, or, even worse, your customers. Before accepting any agreements, you should research your prospective outsourcing partner’s brand image. In today’s web-connected world, this is simple to accomplish.

You may utilize sites like GoodFirms and Clutch, for instance, to discover more about the provider and read what prior customers have to say regarding them. If you still have concerns, you may always contact firms that the BPO service has previously dealt with and inquire about their experiences.

Expertise is important

You may start looking for BPO businesses that suit the bill after you have your scope of work paper in place. Once you’ve narrowed your selection down to three or five vendors, you may assess them based on the following criteria:

● Experience with advanced projects

● Overall competence

● Access to technology

● Overall skills

Technical talent, while frequently neglected, is critical to the success of any outsourcing collaboration. Avoid working with firms that specialize in only a few technologies, especially if those technologies are outdated.

Know how much you can spend

If you want top-notch service, keep in mind that it will cost more than usual. Before moving further, determine and finalize the parameters of your outsourcing investment. When dealing with any service, discuss your budget and confirm that they can give a price plan that meets your requirements.

Make sure they are flexible

Another crucial consideration when outsourcing is flexibility, which extends beyond the fee structure. The outsourcing firm must be adaptable enough to meet any of your requests or fix your difficulties on short notice. This is especially critical when operating across many time zones.

Data Protection

In an age where cybersecurity is a key consideration for every organization, you must ensure that your outsourcing partner has the appropriate safeguards to protect your sensitive data. When the contracts are on the table, it’s common to draft a nondisclosure agreement that your vendor will sign. Your supplier should also regularly execute network and security assessments on their facilities. They must have the most up-to-date tools and software to keep your data safe from internal and external breaches and attacks.

How to Make Operations Go Smoothly

Building and maintaining a strong relationship with your outsourcing provider is crucial. Attempt to comprehend your needs. Determine if each function is worth outsourcing or whether it is better to retain it in-house. Some procedures may lose their value or uniqueness after being transferred to a third party. You must also be upfront about your relationship’s expectations. There are no alternatives.

Similarly, cutting corners to save money is the worst thing. It will only result in future expense increases. Recognize that your front office processes are built on the basis of your back office operations. Here are some ways to cut outsourcing costs:

● Develop stronger ties with your provider and bargain with them.

● Only hire as many people as you require.

● Relocating a portion of your internal personnel to the outsourced facility

● Choosing if cheaper offshore employees are preferable to a local labor pool that requires less training.

● Rather than flying to your partner, use web conferencing technologies to interact.

Considerations Before You Set on a Partner

Internal employees must be informed about your outsourcing plans. To gather information, invite everyone to engage and voice their thoughts. Remember to think about the long run and analyze how your outsourcing decision will affect you in the future. It’s typically advisable to begin modestly and gradually increase the risk.

Making a strategy is also advantageous. It should address your specific needs, development prospects, and potential difficulties. You should be aware of all possible commercial, legal, and financial risks. Dealing with only one company decreases your risk even more. As your relationship progresses, remember to keep lines of communication open and monitor your partner’s development. These key elements may be divided into three stages: planning, execution, and oversight. You should be aware of the following:

Planning

Things may be more challenging to do work than it looks. There’s a lot to consider when it comes to outsourcing, especially if it’s your first time. Remember that a successful connection requires collaboration from all parties involved, including your internal team. Obtaining feedback from employees on the transfer can give you helpful information to assist you in making an educated choice.

You should also explain why you believe your company requires this step. This will help everyone comprehend why you are relocating. This is where considering the long-term implications of your outsourcing decision might help. Understanding how it will affect your business in the following months or years is crucial.

Execution

This is when you begin outsourcing your first back-office work to a BPO firm. As previously stated, a two-way transition approach should be implemented with considerable effort. Talk to your partner about your particular needs while keeping in mind their objectives. They must benefit from the connection if it is beneficial to them.

From here, you may develop a successful governance and management strategy. This will ensure that your policies and procedures are strictly followed. It will also guarantee that the job you entrust to us is not endangered. You should establish a plan for dealing with any potential risks that arise at this time. When feasible, dealing with a single source rather than several suppliers at once is the best option. The more talented they are at what they do, the more trust you can have in them, and the easier it will be to keep track of their progress. This translates to fewer administrative duties.

Supervising

Back office outsourcing is an ongoing project. Your engagement does not cease when the transfer is completed. To make your transfer successful, think of it as a long-term collaboration rather than a way to assign the outsourced task’s responsibilities.

Keep an eye out for any issues, and be ready to discuss them with your provider as soon as a suitable solution emerges. Recognize how you may help their growth at the same time. On the other hand, your outsourcing partner is a business that needs to grow and keep a competitive advantage in a competitive market.

Conclusion

Back office outsourcing is much more than a cost-cutting strategy. Before placing your first outsourced function into action, think about it thoroughly.