Keeping costs down in the agency world is a competitive advantage, and for most businesses their staff costs are their greatest outgoing. By relying less on full-time staff and more on an on-demand pool of workers you can exchange fixed permanent staff costs to flexible freelance costs.
More agencies than ever are turning to freelancers to complete client work, each for their own reasons. Some need niche skillsets to help finish a specific project, so a highly skilled freelancer is the obvious choice. Some need to turn work around quickly, so engage a few freelancers to increase their bandwidth. Others learned painful lessons during the financial crisis (or just have a shrewd eye for finance) and want to keep their fixed costs as low as possible, so have a small full-time staff and build out creative and technical teams with freelancers when a new project starts.
Keeping fixed costs low means less risk for agencies, and the savings can either be reinvested in business development, or used to keep prices competitive to lure in more clients.
How much can you really save?
Wherever you are in the world a permanent employee has more costs than just their salary. Before they even start work you have recruitment costs (which a recent study pegged at around £30,000, if they’re replacing another employee), and once they’ve been hired there’s premises, equipment, insurance and much more to think about.
In the UK, even if you meet the bare minimum of costs associated with taking on an employee - Employer National Insurance contributions and workplace pension contributions of 3% - a mid-level employee on a salary of £35,000 will cost £39,380 annually - that’s another 13% on top of their annual salary to begin with.
Engaging a freelancer, by contrast, is a purely business-to-business transaction, with no hidden costs and no expectation of recurrence. Cash is king in business, and with a freelance arrangement you know exactly how much is going out the door.
The market decides
The freelance market is just that - a market. If a specific skillset is rare and highly sought-after the rates on offer can verge on the ridiculous. IT contractors in the City of London with niche expertise can command up to £2,000 a day if the right client comes along.
At the less niche end of the market social media consultants, designers and SEO specialists are all finding their rates squeezed by increased competition and self-service platforms which allow businesses to bring those functions in-house easily.
The basic laws of supply and demand affect freelancers as much as anyone else, and the level of supply in the market is exploding. The UK’s Department for Business, Innovation and Skills released figures recently which showed that the number of freelancers and contractors has increased by 73% over the last 15 years, while a study in the USA predicted the freelance population there will top 40% of all working adults in the next five years.
Demand is increasing too, but for many professions the two are not keeping pace with one another. The number of freelancers looking for work is exploding.
At the end of 2014 oversupply of oil caused prices to fall worldwide, and China’s recent economic slowdown has seen steel prices in the West plummet as stocks increase. The same cause-and-effect is flattening the day rates of creative freelancers around the world, and that’s good news for the companies hiring them.
Freelancers work fast
You may be wondering how our £2,000-a-day City contractor can possibly be a sound financial decision for the company doing the hiring. For that money you could get a mid-level employee for a month.
The answer is skills and efficiency. The contractor’s day rate may be astronomical, but if they can install a new system in a week that results in £100,000 in cost savings, the cost benefit analysis is an incredibly simple one.
Using a flexible freelance pool you can make sure you’re using each individual to their maximum effectiveness, rather than a small group of permanent employees having to learn new skills as they go. With a freelance workforce you have all the skills you need at your disposal - you just need to engage the right freelancer for each job to ensure the best result.
Many freelance gigs are paid on completion, which gives another incentive to get work finished quickly. A permanent employee will get their salary whether they hit a deadline or not - freelancers have a monetary incentive to get the job done, and get it done well.
Geography isn’t a problem
While permanent employees are traditionally an on-premises solution, freelancers work just as well - and often better - when hired remotely. This allows businesses to hire the best person for the job regardless of their location. With businesses in the west facing some of the highest employee costs in the world there is money to be saved by finding the right freelancer in the right location.
Even finding a freelancer a few hours away can save a business money. The average day rate in the North West of England is £260 per day, whereas freelancers in East Anglia command £318.
A £58 reduction in fees is an impressive saving, especially when you consider the fuel bill for driving from East Anglia to the North West would be around £30.
The trick is knowing how and where to find the right people. Hiring the perfect person, be it a developer in Manchester, a designer in Barcelona, or a copywriter in Los Angeles, will help improve efficiency and keep your freelance costs down.
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