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The Web Developers Field Guide to Outsourcing

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Old 10-04-2005, 09:06 PM
PBFerrigan PBFerrigan is offline
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The Web Developers Field Guide to Outsourcing


Hi,
I just finished this reference guide that I thought would be helpful for webmasters who are new to the concept of outsourcing. Please let me know if you have any questions or concerns. Thank you, Peter Ferrigan

The Web Developers Field Guide to Outsourcing
By Peter Ferrigan

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What is Outsourcing?
****

Whenever you hire someone or a group of people that are outside of your business to handle business functions. This can include, auditing, payroll data entry and work in Information Technology.

Outsourcing is essentially hiring a contract employee for your business. While the concept can be used for businesses and projects of any size the work involved is about the same. You will still need to manage your work and employees, answer questions, make sure that work is completed on time and within budget. This guide will explain how to do all of this. In the next section you will learn about the benefits of outsourcing your development work and what this means for your bottom line.

Not currently spending anything on web development? Doing it all yourself? Hi, my name is Peter Ferrigan and this was me 3 years ago. I used to do the same thing until I realized that my job was to smoothly run successful websites and build new online ventures. You can look at the passion for new business or the pure number value. Either way there are larger things that you could be accomplishing with your time. How much is one hour of your time worth? If you are currently working for someone else, the number is easy to place. If you are self employed, it gets a bit harder.

Starting out as a programmer, when my work load increased and I was self-employed I naturally assumed that I would continue doing what I was best at, programming. The change from programmer to Project Manager happened when I started to put a number value on my time. One hour of solid coding, how much could I charge for this? As the work increased and my life got busier things started being measured in smaller amounts of time. Instead of basing my pay on the entire project, I began to look at how many hours it would take to complete and then my average pay per hour.


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Developer Fantasy Land
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Let’s say you take a small job that will take you an hour to complete. For this work, your client, or boss pays you $40. So your wage per hour is $40. This is of course assuming that you have an unlimited amount of clients or a rock solid job, which is why these figures are used as just an example. So you are currently making $40 an hour at a rock solid job or self employed with a waiting list of wealthy clients. Life is good. You set $40 per hour as the cost for 60 minutes of your time.

Change your perspective just a little bit and you can see that there is lost opportunity. I read once that when investing in real estate you should avoid all contact with a hammer, paint and nails. Why? Your job should be a professional check writer, because time spent hammering or painting is time lost doing something more profitable. Actions such as looking for another house to purchase.

Regardless of your current title, I am sure you know there are larger opportunities in your field. Most of the time these opportunities are lost because you are too busy focused on mundane details rather then the bigger picture of what you could be achieving. Included below is an example of how outsourcing can benefit you.


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Outsourcing for Increased Profit and Productivity
****

Back to developer fantasy land, you’re making $40 an hour. What if you could find someone to do the same work for $5 an hour? What if they were available 24/7 and could work while you were asleep? How much would your time be worth then?

If you could find someone to do the same work for $5 and you were charging $40. You would make $35 an hour right? That’s the common assumption for the starting Project Manager (your new title).

How much time would it take you to find the programmer, explain the project and check the work. Usually from my experience (for a one hour job) only about 10 minutes. So what is your total pay? $35 for ten minutes of work. We are still in fantasy land, so after you have hired someone for $5 to complete your $40 job you go to the next client on your list.

Another $40 project appears, you spend $5 and 10 minutes. This keeps going on 6 times. So in one hour you have made $210 ($35 X 6) as opposed to your previous $40 an hour.

You have just given yourself a 525% percent raise.

One thing to remember is that we are in outsourcing fantasy land where each programmer does exactly the right work; it is always completed on time and to your exact specifications. This of course does not happen all of the time. You will have some programmers cancel, others not respond and some might complete the work incorrectly. If you leave 20 min out of each hour to review and handle these issues, you are still making $140 / hour, 350% raise.

The best part is that outsourcing not only allows you to be more productive and profitable while you work, it also provides these benefits in the time your off work.

Let’s say you work just 8 hours a day, and no more (in fantasy land). This means that you are unproductive (on work issues) for 16 hours of every day. These 16 hours can start making you money. Let’s take a look at the numbers:

Stated before the average project that takes only 1 hour of your time can be done for $5 and 10 minutes leaving 20 minutes of every hour for exceptions. As you will be planning ahead for the next 16 hours this will take some additional time to prepare the work. Let’s give each project an additional 5 minutes to setup. This means each project takes 20 minutes: 10 to find explain and check work. 5 to plan ahead and 5 to cover mistakes. These 20 minutes are split between when you leave work and arrive the next day. We are going to outsource just 6 projects, which means this will take just one hour before you leave work and one hour when you arrive in the morning the next day.

Taking a wage of $35 per project this translates into $210 for 6 projects outsourced while you sleep. After this we need to deduct the $80 of time spent (2 hours) preparing the work and your total profit each night is $130. Over a year (without holidays) this is a $30,000 raise.

Of course the above example is just an example. I wish it were as easy as breaking down projects into 15 minute segments, and each segment only took 15 minutes. Also it’s important to note that no one is a machine. Unfortunately as your work increases, so does the number of people you need to manage. Without a reliable management structure in place this would also increase the number of delays and chance of error. Then there is the waiting list of wealthy clients, which for most developers, doesn’t exist.

So if you could be making $210 an hour during the day, and right now you are only making $40, not outsourcing is actually costing you $170 an hour of lost potential.


****
Outsource Today’s Work
****

The best way to start is to join a freelancer marketplace, there are some great directories on the web that have these listed. These websites are broken into two sections; one for Project Managers (that’s you) and the other for Freelancers; this includes people who are skilled in programming, design, writing and other talents.

As a Project Manager outsourcing your development work is broken into four steps: Signup, Post Your Work, Select a Freelancer, Payment and Feedback. Below you find a description of each step followed by the relevant link to complete this action.


Signup :: The first thing you will need to do is to signup at a Freelance site as Project Manager. This allows you to post projects, accept freelancers and make payments online.

After filling out the short signup page, a letter will be sent to the email address that you submitted. This is done to confirm that your address is valid and you are able to receive important announcements pertaining to your projects.


Post Your Work :: After signup, gather the project details together and login into your account. After login you will be taken to the Account Management page. Here you can see the information relevant to your account. To post a project, click the link ‘Create Project’ (or something similar) at the top of the page. You will need to fill in the Title, Project Type and description of the work that you would like to be completed. Later in the guide I will explain how setting the right budget lowers your cost, and which details to include ensuring you get the most qualified bids.


Select a Freelancer :: Most freelance websites are setup in a way that allows Freelancers to openly compete for your business. This known as a reverse auction, where competition actually lowers the bids instead of increasing them. Each Freelancer will be able to submit a bid (the cost for the posted work to be completed) and a time frame for the delivery of completed work. The average marketplace will have hundreds of Freelancers which means your project will receive multiple bids from people around the world eager to complete this work for you. Go through each Freelancer’s bid and select the person that you feel is best suited for the work.

Payment and Feedback :: After the project is complete you will then need to log into your account to submit payment and feedback about the Freelancer that you worked with. A frelance website creates online accounts for both Project Managers and Freelancers, which are used for transferring funds related to work completed. As a Project Manager there are usually several ways in which you can add money to your account: Checks, Money Orders, Bank Transfers, PayPal.com, Authorize.net, 2checkout.com, eGold.com, StormPay.com, YowCow.com are almost always supported. Once the funds are placed in your account, you will then need to transfer funds to the Freelancer you worked with. These channels are also used for Freelancers withdrawing funds so you don’t have to worry about how to send payment to a Freelancer in a different country.

Leaving feedback is a valuable way for you to record your experience with this particular person. When doing so, it is important for you to include comments about their skills, communication and working in the time deadline. This information is then used for other Project Managers considering them for work.


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Completing Projects Faster, Accurately and Cheaper
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In this section of the guide you will find practical things that you can do to ensure that you project gets started smoothly, progresses quickly and finishes on time.

Detailed Description :: Include a detailed description of the work needed. Each word you add to your description saves you money. By spelling out the work required for the project you do not leave this up to the freelancer to figure out. A clear concise description will save you money on each project.

Place your website address in the description. It always helps, and saves money to give a live example of the website you are referring to. If you are not comfortable placing your website, place one that is similar. Or if you do not have a website created, give a detailed description of the work that you would like done and give a few example websites, highlighting the features you would like to include.

Use Escrow :: Most website employ an escrow system which allows you to place funds in a neutral account and release them once the project is complete. It is recommended that you use this system for each transaction, the reason being is that it gives each person 50% control over the money. Only you can complete the payment into the freelancers account and only the other Freelancer can release the funds back to you. Disagreements do occur and the best way that we can help you as a Project Manager is if the funds are placed in escrow. A good policy is to make your payment into escrow for the freelancer when you select his/her bid. This shows that you do have the money and it is committed to the project. Once the work is complete you simply complete the transfer into their account.

Post a Budget :: The worst mistake you can make is not included a budget at all. This outright says to people bidding on your project that you are clueless about the work required and money is no object in the completion of this work.

Post the Right Budget :: I half-jokingly suggest to anyone that brings this up that they should place a max budget of $10 for each project. By placing a $10 maximum you eliminate the idea that the Freelancer will be able to over charge you for this work. Instead you place them in the state of mind of “How can I win this contract for the least amount possible?” Obviously the $10 trick will not work for every project however if you are not sure how much your work will cost then put a $10 maximum.

Avoid Attachments :: Including an attachment in your project description, i.e. “please see the included file for complete details”. I have seen it time and again. Projects with attachments that are included in the description receive less bids and higher estimates. The reason is that there is an automatic assumption that if the description is to complex to be laid out in plain text, then the work involved must be equally as complicated.

Delay the NDA :: Personally I feel that NDAs are over used. If you feel that your project and work absolutely requires this level of secrecy then include this requirement down the road after you found a few good candidates for completing your work. By saying in your description that you require an NDA to be signed by all freelancers scares off a majority of potential candidates. A solution would be to put in the general description of the work you need done. Such as the type of website you would like to create or the specific steps involved. Once you have a list of qualified freelancers talk to them each individually about signing your NDA.

Don’t Modify the Posted Description :: Some people post a project and then the next day make a change to the description. After answering some questions and thinking about the work a little more, then make another change and another. This leads to inaccurate bids, uninterested freelancers and a very bad start to your work.

The best thing to do is before you place a project, write down every thing that about the work that you can think of. Include what you would like to end up with, what you have now, examples of similar work and your estimate of the work required. If you have started a project and need to make a change, the best thing to do is to rewrite a new project description and post it again. For most freelance websites there is no charge for posting projects and this simple action can save you a lot of time and stress.

Once the new project is posted, go back to the old one and invite each programmer to bid on your new project. This will give you clear and accurate bids to ensure that you pay exactly what the work requires.

Open Communication :: Issues in development can start out small and grow quickly you do not catch them early enough. For this reason it is crucial to keep open communication with all of the people you are working with. One idea is to create series of events according to the project deadline. Short deadline projects are relatively easy to manage.

For projects extending over 5 days, I have found it helpful to work out a list steps to measure progress. These include the dates for the first mockup, when revisions will be completed and the final deadline. Having a series of smaller deadlines breaks down a large project into smaller, easier to manage pieces. Having and sticking to your smaller deadlines consistently reminds the Freelancer that completing the work on time is very important to you.

Use MSN :: By far the most popular communication tool when doing business online. MSN Messenger allows you to instantly connect with the people you are working with to hammer out details and check on progress. After you have accepted a freelancer to work on your project, immediately send him your MSN address and ask the following questions:
Do you have any additional questions about the requirements?
What do you need from me to get started?
How much longer are you available to work today?
Consistently check in and make sure you are available to answer questions. Once in a while ask “How is your work coming?” “When will a mockup be available?” “Do you have the demo ready?”


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Additional Help
****

You now have all of the tools that you need to get started. Each step has been covered from posting your project to leaving feedback. We have also gone over some advanced topics that will help ensure your work is completed on time and to your satisfaction. You are ready to start outsourcing today.

If you have any questions about how to post your project, or the best way to word your description I would like to help you get started. Please send me an email to the address above and I would be happy to review your project and help you get started.

Also if you are not sure how much you should expect to pay, just send me an email and I will get back to you shortly.

I look forward to hearing from you and I hope that you have found this guide helpful and informative.

Please let me know if you have any questions or concerns.

<<Signature to be setup in your profile>>

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Last edited by anon-e-mouse; 10-05-2005 at 01:44 AM.
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  #2  
Old 10-05-2005, 01:47 AM
anon-e-mouse anon-e-mouse is online now
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Moved to Running a Web Hosting Business Tutorials. Looks like it could fit in a few places, so this one is more "central".

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  #3  
Old 10-05-2005, 02:28 PM
PBFerrigan PBFerrigan is offline
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Thank you anon-e-mouse.

-Peter Ferrigan

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  #4  
Old 10-07-2005, 12:57 AM
Bashar Bashar is offline
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now this is an amazing piece of article you wrote Peter.

Keep it up!

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  #5  
Old 10-07-2005, 12:25 PM
PBFerrigan PBFerrigan is offline
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Thank you Basher,

I appreciate the feedback.

-Peter Ferrigan

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  #6  
Old 06-14-2007, 10:32 PM
TheAdjustment TheAdjustment is offline
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Hourly vs. Pay per project

From a business owners perspective do you think it is more valuable to the business owner himself to pay an hourly wage to the outsourcer or to pay per project?

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  #7  
Old 07-01-2007, 01:35 PM
mwatkins mwatkins is offline
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"TheAdjustment": These comments are made to be more general in nature, not specifically against the original poster's article.

Whether you pay per hour, or pay per project (or "task" or "phase" within a larger project), what you are really talking about is the shifting of risk.

Pay per hour generally implies that the project owner (client, general contractor, whomever...) is taking on most or all of the risk - risk of cost escalation due to project schedules not being met; of poorly done estimates, etc.

Pay per project (or phase) implies that some, or much, of the above noted risk is being pushed on to the developer/contractor.

Ultimately the organization paying the bills has most of the risk; while you can design a contract to push as much risk as possible to the subcontractor workforce, the risk of non-completion and impact on the business is frequently as important or more so than cost escalation.

The party taking on more risk should be entitled benefits - if a subcontractor takes on project schedule and estimation risk, then their fees will generally be higher because they are building in some leeway for contingencies.

If the project owner takes on the estimation risk and has a fleet of hourly paid contract project staff, then the hourly wages paid to the subcontractor should be lower, reflecting the lower risk profile that player is accepting.

Unless there is a very clearly defined scope and statement of work, anyone taking on fixed price work, even with contingencies, is playing a dangerous game. Even with well defined project boundaries, many projects fail because of unanticipated requirements that were not fleshed out fully in the analysis phase of the project. It takes mature clients and subcontractors who clearly understand that working together for everyone's benefit is the best way to achieve project success.

Sadly many prospective clients do not understand that their contractors have to be successful in order to make them successful. Its best to identify such bad clients before signing contracts and walk away, but sometimes you have to fire the client after work has started. Be sure your contracts allow for that.

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  #8  
Old 08-14-2009, 02:50 AM
Kelly Thomas Kelly Thomas is offline
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Outsourcing is essentially hiring a contract employee for your business. While the concept can be used for businesses and projects of any size the work involved is about the same. You will still need to manage your work and employees, answer questions, make sure that work is completed on time and within budget. This guide will explain how to do all of this. In the next section you will learn about the benefits of outsourcing your development work and what this means for your bottom line.

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  #9  
Old 02-08-2010, 10:02 PM
TBradley TBradley is offline
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Quote:
Originally Posted by TheAdjustment View Post
From a business owners perspective do you think it is more valuable to the business owner himself to pay an hourly wage to the outsourcer or to pay per project?
I have found from me personally, that paying by the project seems to be the most effective method. Seems like when its by the hour they really drag our the project.

Cheers

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  #10  
Old 02-09-2010, 12:38 AM
Disrelation Disrelation is offline
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Quote:
Originally Posted by TBradley View Post
I have found from me personally, that paying by the project seems to be the most effective method. Seems like when its by the hour they really drag our the project.

Cheers
Indeed, it really does and sometimes paying by project is really a great method.

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  #11  
Old 11-27-2010, 12:27 PM
qtriangle qtriangle is offline
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Quote:
Originally Posted by Taylor-e2 View Post
Indeed, it really does and sometimes paying by project is really a great method.
Paying by hour can be misused by designer and paying by project can be misused by client. But later option is asked by most of the clients, because they want to do many many things in limited budget. So designers are helpless but to accept it.

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Old 12-05-2010, 04:55 AM
gmshawn gmshawn is offline
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Great tutorial i must say!

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Old 02-22-2011, 10:13 AM
powerplaybegins powerplaybegins is offline
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Hi,

It all depends on how much faith you are willing to put in the designer. If you are sure of his reputation and ability it would do no harm to go by hourly basis. After all, a good designer would want to retain you as his client for future projects as well.

Thank you

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