From outsourcing sources to outsourcing sorcerer's.

Today I want to discuss how outsourcing can be a bad idea.
Eveyday there seems to be more and more people looking to earning online, and I think that this has increased in recent times due to the way of the global economy, as well as fear that those that still have jobs may lose them if the economy doesn't improve anytime soon. And lets face it, there is something very attractive of being able to work online for yourself, and having control over your finances and not having your entire family's future held at the mercy of your company which may downsize you, close your branch, or plain go bust, if the economy doesn't improve.... quickly....

I also realise that people that come are from different walks of life, as well as different countries, examples may be people that are seeking to earn a full time salary (to replace the need for a normal full time job), or kids looking to earn during school holidays, or just people trying to pick up some spare cash.

Now I would like to say that I encourage people to work online and there is nothing wrong with this. However, one piece of advice that is given out, sold in ebooks on how to get rich quick; is to use outsourcing. That is, finding a buyer, finding someone to do it, and pocketing the difference.
In fact, on digital point forums theres been a few people blatantly boasting on using outsourcing successfully.
Now to be clear, there is nothing wrong with this, however, if this is your business plan then I want to warn you to be cautious.

Before we continue, I want to mention some of the popular categories of work that is typically outsourced online (feel free to add more underneath this post if you want):

• writing
• websites and programming
• graphics.
• SEO / backlinking
  

Chain of outsourcing
Now, lets look at the chain of outsourcing. Someone hires you, you hire the worker, you handle payment, and contact between the two, and BOOM, extra $50-$100 for sending out a few emails
Buyer pays $100 → you take $100 → worker takes $5

But lets look at fiver now shall we? (I mean, where else will your outsource from). It is very rare for projects there to be delivered on time. One project of mine was a 20second animation (was multiple gigs as well), took over 12 months to complete . Now for me, I was 'happy' to wait, not cancelling until it was months overdue, before cancelling and hiring someone else, and too boot, I offer bonuses for any job done on time (which almost never happens).
But tell me, if someone hired you, and you outsource and hired others.... and a week later the jobs not done (or done badly) and you have to rehire others... what excuse will you have to your customers? At what point will you have to provide your customers with a full refund? And once a refund is done, what about money tied up in fiver? You cant just get it back. What about any other payment processing fees? More importantly, how much time have you wasted?
If I offered you work for $1 per hour, would you do it? With outsourcing, you might earn less then this... in fact you might even lose money.

Now, you might say, ok, lets avoid fiverr, and hire workers from freelance, or odesk (or other online hiring site). Ok so lets redraw the chain of outsourcing.
Buyer pays $150 → you take $150 → worker takes $50.....

does that look right to you?

Let me give you a real life example. In my night college course, I got a 3 distinctions for my PHP/SQL app. Imagine my surprise when I found out that a student that dropped out (only basic html skills nothing else) was bidding on large freelancer projects and outsourcing the work.... This is a guy that walked out before learning “hello world”. Tell me, do you trust him to do your work? Hell no. (BTW, the guy went bust, dunno how much he lost before he gave up)
So lets draw the chain of outsourcing again.
Buyer pays $150 → you take $150 → another freelancer takes $50 → maybe even another freelancer takes $25 → and a guy on fiver does it for $5.

Another thing to consider is that the person hiring YOU (when you are outsourcing) may very well be outsourcing himself. But tell me something. Do YOU like being part of the outsourcing chain (ie an outsourcer hires you not an end user?) I know for a fact that there are some writers on DP that are pissed off with dealing with “middle men”.

I realise that my examples may not be the normal, but I wanted to highlight some of the potential issues that arise. The issues with revisions, changes, communication issues. If the end buyer pulls plug and demands refund due to the quality not being what they expected for the amount paid, tell me, who wears the cost? Will the worker happily refund his portion? Should he? No. If you hire someone for $5 to do a $5 job, and it looks like its worth $5, then they deserve to be paid. If you hire someone for $5 to do a $500 job, then that is your fault.
Another thing is, that if you hire someone for $5, and they are sick, or late, they might not care, I mean, really, its only $5, but you stand to lose a lot more if the job is late / poor quality!

Now. Lets discuss where you go to find clients. If you are doing what my friend did, (finding work on freelancer) you are potentially competing against the people you are hiring. Hell I have seen this on DP, where a writer was outsourcing for $0.xx, while in another thread, trying to convince people that his writing was top notch, and worth of $x.xx Just think about that for a second. What possible advantages can you offer to convince a buyer not to buy from 'person A', that you are better then 'person A' when you in fact will hire 'person A' yourself to do the work for you so that you can pocket the difference.

Before outsourcing have you ever sourced?
I see people looking at fiver gigs thinking; “I can hire them, they will finish in their set time frame, and I will deliver the finished product”. But have you personally ever hired someone for your own projects? Learn from my experience. In the last 2 years, I have hired a lot of developers to work with me for parts of my sites (things that I cant do myself). I let THEM decide the price, as well as the completion date. And I offer them a 10% bonus when they finish on time.
In 2 years, not one developer has ever finished on time... not even close. Doesnt matter if hiring on fiverr, freelancer, DigitalPoint, seoclerks, having projects completed late is a part of life. So if someone tells you, promises, swears their life that they will complete the project in “3” days, you cant promise your customer 3 days delivery. I would go 7 days, (and still thats risky).
Just remember, it took 12 months of hiring on fiverr, and Digital point to do a simple 20 second animation, you can imagine how pissed off I was. But if you are outsourcing, this is something you need to expect, where you could be hiring people, tying up funds, and having to refund your buyer as you cannot deliever the product.... not a good position to be in.

Where outsourcing becomes a good idea.
This is just my opinion, but if you are sourcing clients and outsourcing work online, then its not good. However, if you were to find new leads, (like you know a company needs a new business card designed), thats when its a great idea to offer to handle all the correspondence.
While this is still outsourcing; I do like the idea of partnerships, where someone with really good work but bad engrish, teams up with someone who is excellent at promoting the work.
Another good example of outsourcing is when you are adding value. Like you are providing (and delivering) a service, and bring in others to help with any parts that you can't do yourself.

You really should have some skills before starting to outsource.
If you are strictly outsourcing, (neither adding value nor having the skills to do the work) then you are vulnerable. A skilled graphics artist could outsource work, and if its good, its great, it its crap, they do it themselves, no big hassle. Whereas for an unskilled outsource, if you hire someone and the work is crap... you have to rehire... and rehire... and rehire...

Avoiding outsourcing sorcerer's.
In the last few months, I have seen dozens of sites for sale which is pretty much just outsourcing sources done by outsourcing sorcerer's. I mean these are often sites where people buy youtube views, or SEO. The site seller sells the illusion of easy money with “lots of potential” that comes with sources to outsource to. In one case, (on flippa), the “outsourcer” was the person selling the site... do you see something wrong with this? I could be wrong, but their strategy for earning is to sell the sites. Lets say they sell 100 sites, and each site only makes 1 sale a month, BINGO, they are earning. But how much do you earn? What if the person you hire (who probly takes a commission before passing to the final supplier) what if they are on holidays?
In short, if you are looking at a site like this, dont buy. You are completely dependant on others to deliver the product, and odds are, whoever is doing the outsourcing, possibly has their own site with pricing lower then the cost to you. It will be nearly impossible for you to rank well in google,

Dont charge me chargeback!
One of the biggest risks of working online, specifically outsourcing, is when chargebacks occur.
Lets relook at the example chain of outsourcing.
Buyer pays $100 → you take $100 → worker takes $5
If the job is completed, and the buyer does a chargeback YOU lose:

• The $100 originally paid
• The $5 (or more) paid to the worker
• a $25 (or more) chargeback fee

Thats $130 GONE! Thats $35 MORE then the profit that you were going to earn in the first place!
My example is a little dramatic. A real life example is that I know someone here on DP that outsources graphics / logos from DP to other DP members with only a $5-$15 profit margin. Depending on the everything, 1 chargeback in 10 transactions, would mean they are working completely for free → you tell me, if this is something you want to do!

Just to sum up.
Yeah, there is big money to be made in just pure outsourcing (not doing any work or adding value yourself), but looking at the risks, the hassles of finding buyers as well as finding decent workers, not to mention dealing with people that pay deposits and not the rest or dealing with chargebacks, be sure to ask yourself if it is really worth your time.

Please, this thread is open for discussion on:

• ethics of outsourcing (without adding value)
• your experiences as an outsourcer
• your experience working for outsources
  
• your thoughts as a buyer -> do you feel ripped off if you could have hired direct for half the price and have faster communications between you and the people doing the project?
• anything else in between.