Outsourcing production can have some advantages for a new start-up product provided there are existing suppliers qualified to manufacture the items to your specifications. Control over the new product can be documented in contractual agreements. It is always a good idea to have more than one supplier, if possible, to ensure you can meet your product delivery demands. However, multiple suppliers can create problems with maintaining consistency of quality.
Outsourcing also means you would not have to invest heavily in developing your own infrastructure. Your market research and your business plan should give you a basic idea of your potential sales volume and selling price, from which you could calculate a break-even point in terms of recouping your initial investment when you switch to outsourcing.
Outsourcing makes it possible for a small business owner to use the latest technology without having to pay for it. Payroll service providers, for instance, use top the line software programs to keep track of payments. Order fulfillment companies use RFID product tagging to ensure that products are not lost or stolen.
Employee costs and availability is also a determining factor in many companies’ decision to partner with an outsourcing service. By outsourcing services instead of hiring employees, a company saves money that would have been spent on salary, paid leave, health insurance, etc. Additionally, outsourcing enables a small company located in a small town to hire a competent, experienced professional in another town.
The purpose of this factsheet series is to help producers and processors understand the key elements needed to manage a business. The factsheets also discuss some of the essential components used to develop a business plan and assess the profitability of a business venture.
Finding out if people will pay one-third more for your natural, organic produce rather than buying produce at the local grocery store... calculating if you can make a profit if it costs $5.00/jar to make and market your gourmet jams and jellies... asking customers if they would patronize a gourmet coffee bar if you added one to your store - these are all examples of market research.