Two Numbers Decide Whether You Should Build Your Team Abroad

How do I know if offshoring is right for my business is a question most founders answer by feel, and the feel is wrong in both directions. The test is arithmetic, and our pricing page exists so you can put a real number on one side of it. Put your wage growth next to your gross margin over the same period and see whether the two lines are converging or separating. On 31 August the Australian Bureau of Statistics published the national version of that sum, and the lines separated again.

The profit headline was mining wearing a disguise

Company gross operating profits rose 1.8 per cent in the June quarter. On its own that reads like a recovery.

The industry table says otherwise. Mining rose 6.8 per cent. Professional, scientific and technical services rose 4.6 per cent. Almost every sector a 10 to 50 person Australian services business would recognise as its own went the other way, according to the ABS Business Indicators release: financial and insurance services down 19.7 per cent, other services down 11.0, retail trade down 5.2, wholesale down 2.9, transport down 2.4.

Wages and salaries in the same release rose 1.4 per cent for the quarter and 5.7 per cent over the year.

Running the offshoring test on your own payroll

Take your last four quarters. Total wages including on-costs and superannuation, not base salary. Then gross profit.

If wages grew faster than gross profit, you have a structural problem rather than a bad quarter. At 5.7 per cent annual wage growth, a business carrying a $2 million payroll absorbs roughly $114,000 of additional cost a year before anything else happens. You do not negotiate that away at review time. It compounds.

The split that actually tells you something

Divide the payroll in two. Roles where the person must be in the room or in the country, and roles where that is a habit rather than a requirement. Run the wage growth number on the second group only.

If that second group is more than about a third of your payroll, this stopped being a philosophical question. It is a maths one, and not acting is an answer.

What it does to margin

Three mid-level admin, bookkeeping or customer service roles in an Australian capital run to roughly a quarter of a million dollars a year, growing at the national rate. Built offshore and employed properly rather than contracted informally, the same capability typically lands at 40 to 60 per cent of that, and it is not indexed to an Australian award. Test it on one role before committing to a model.

Do it badly and the saving is gone inside a year. We put figures on that in what getting the first offshore hire wrong actually costs, and the pattern holds: the businesses that lose money offshore treated it as a procurement decision.

The strongest argument against offshoring

Plenty of firms in those shrinking sectors have a demand problem, not a cost problem, and trimming the local wage bill will not repair a shrinking order book. Fair reading. For some readers it is the right one.

Here is where we land. If your revenue is flat and your wage bill is growing, this buys margin and time. If revenue is falling, it buys time. Both beat waiting. The businesses that moved on this in the first half of the year are not smarter than you. They ran the sum earlier, while the gap between the two lines was still small enough to close with one or two roles rather than a restructure.

Related reading

• Upskill, offshore or hire, and how to choose
• The companies that built offshore capability in H1 are already compounding
• Your HRIS was not built for a borderless team

Outstaffer employs people properly in the countries they live in, so we benefit from you running this calculation. Run it anyway, with your own numbers, and get advice for your own situation before restructuring anything. How do I know if offshoring is right for my business is not a question of appetite. The answer is already sitting in your accounting software.

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