How to Calculate ROI on Outsourcing: A Practical Guide
“ROI” on outsourcing usually means one of two different things: did the work cost less, or did the time released earn more. Mixing them is how people end up with a number that impresses nobody twice. Work out both separately.
1. Establish the in-house baseline first
You cannot calculate a saving without knowing what you currently spend. For each task, record for two weeks:
- Hours actually spent, not the hours the task “should” take.
- Who spends them — a director hour and an administrator hour are not interchangeable.
- Frequency — daily, weekly, monthly, seasonal. Irregular work is where estimates go furthest wrong.
- Rework — hours lost to errors, chasing and correcting, including your own.
Then cost it. A commonly used method is fully-loaded hourly cost: gross salary plus employer taxes and overhead, divided by productive hours in the year. Take out holiday and training; a 40-hour week is not 2,080 productive hours.
2. Cost the outsourced option on the same basis
The quote is the starting point, not the answer. Add to it:
- Your briefing time — the recurring minutes you spend preparing inputs and answering questions.
- Your review time — acceptance checks, approvals and escalations.
- Transition — a one-off set-up, document and access cost. Amortise it across the period you actually commit to.
- Tooling you still pay for — licences do not always move with the task.
- Exit — notice period and handover, so a bad outcome is not an unexpected cost.
3. A worked example
The figures below are a made-up illustration of the method. Replace every one with your own before drawing a conclusion.
| Line | In-house | Outsourced |
|---|---|---|
| Volume | 60 catalogue updates/month | 60 catalogue updates/month |
| Time | 18 hours/month at £28 fully loaded | 5 hours/month of your time at £28 |
| Labour cost | £504 | £140 |
| Supplier fee | — | £390 |
| Set-up (amortised over 6 months) | — | £45 |
| Rework allowance | £60 | £20 |
| Monthly total | £564 | £595 |
| Hours released to other work | — | 13 hours/month |
Read literally, this example is a £31 monthly loss. It is also 13 hours a month of an administrator’s time moved somewhere else. If those hours are redeployed to work that earns more than £31 of value, the transaction is positive. If nobody uses them and the calendar simply absorbs them, it is negative. That distinction is the whole calculation.
4. Express it two ways, and be honest about which one you mean
Cost ROI — (in-house cost − outsourced all-in cost) ÷ outsourced all-in cost. This only works if the released hours have no value, which is the conservative assumption.
Capacity ROI — the same difference, plus the value of what the released hours actually go on to do. This is the number that matters for small teams, where the constraint is hours rather than budget. It is also the easier one to overstate, so put a real task against the released time and check it got done.
5. The benefits that do not appear in either formula
- Cover — does the work still happen during leave, sickness or a vacancy? A single avoided backlog can outweigh a year of small price differences.
- Peak flexibility — can volume rise for a month without a hiring decision?
- Consistency — is output quality now defined and checked rather than dependent on who was free that day?
- Speed — a shorter turnaround has value when it changes what you can promise customers.
- Cost certainty — a fixed-scope quote removes the variability of overtime and urgent hires.
Score these qualitatively. Do not invent a percentage to attach to them; a number nobody can defend is worse than an acknowledged judgement.
6. Re-measure at 90 days
The first month of any outsourced arrangement includes transition noise. Before you judge it, check three things at 90 days: whether actual volume matched the assumption, whether your briefing and review time stayed at forecast, and whether rework went down or simply moved into a different column. If the case depended on redeployed hours, confirm they were redeployed.
Do the arithmetic on your own numbers
The ROI calculator runs this method on your inputs, and the pricing calculator gives an indicative fee range before you contact us. If you would rather have someone check your baseline with you, the quote form asks for the same three things this guide does: input, output and frequency.
Put it into practice
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Send the task, the volumes and the deadline. We review the requirement and reply with a proposal and quotation — with a free sample where the service allows.