Measuring the ROI of Hiring Contractors: Your 10 step guide

For Australian businesses, the decision to hire contractors over permanent staff is becoming an increasingly popular one.  But this shift isn't just a trend, it is often backed by very tangible financial and operational benefits. If you are considering hiring contractors for your business, understanding the return on investment (ROI) is paramount.  

Here’s a step-by-step guide to measuring the ROI of hiring contractors:

1.   Define the Objectives

Before diving into the financial aspects, it's essential to pinpoint what you aim to achieve by bringing contractors on board. Are you looking to bridge a short-term skill deficit, manage high-demand periods, cut down on fixed expenses, or accelerate innovation? Identifying your goals will not only aid in assessing the return but also in establishing clear expectations for your new contractor workforce.

2.  Calculate the Direct Costs:

Calculate the direct expenses involved in hiring contractors:

• Contractor’s Pay: This can be hourly, daily, or project-based.
• Recruitment Fees: Costs associated with sourcing and hiring contractors.
• Technology Costs: Many organisations use specific technologies to manage their timesheets, invoicing and payments to contractors and vendors.
• Outsourced Service Costs: Some will also use outsourced parties to manage aspects of their programs and 3rd parties to manage the entire contingent workforce program.  
• Overheads: Any additional costs like software, tools, or workspace.
    

3.   Measure the Cost Savings:

• Recruitment Savings: The cost of hiring permanent staff is often higher than contractors when you consider long-term recruitment processes, benefits, and other overheads.
• Benefits & Entitlements: Unlike full-time employees, contractors often don’t receive health insurance, paid vacations, retirement benefits, etc.
• Training & Development: Contractors are typically hired for their expertise, which can reduce ongoing training costs, if not completely eradicate this cost completely.
• Flexibility: You only pay contractors when you need them, which can be extremely cost-effective during downtimes.

4.   Assess Productivity and Efficiency

A contractor with specific skills bought in for a particular task can often achieve outcomes faster and more efficiently than a permanent employee who may require additional skills/training to do the same task.

5.   Factor in Opportunity Costs

Looking at the bigger picture - what opportunities might you miss if you don't hire contractors? This can be capturing specific market opportunities, launching a product on time, or avoiding project delays.

6.   Gauge Flexibility and Risk Mitigation

Contractors allow businesses with an invaluable ability to scale up or down rapidly. This flexibility can be financially crucial during economic downturns or uncertain times, reducing the risks associated with the long-term commitment associated with permanent employees.

7.   Consider the Intangible Benefits:

• Diverse Expertise: Contractors often bring a fresh perspective and varied skills and experiences that can introduce dynamic innovative solutions.
• Adaptability: Most contractors are well-versed in ensuring quick integration into new teams and adapting to company culture or project requirements.
• Networking: Contractors have the potential to introduce you to other industry professionals or potential new business opportunities through their varied contacts and networks.
  
  

8.   Calculate the ROI:

To get the ROI percentage:

Net Benefits = Total Value Generated by Contractors (both tangible and intangible) - Cost of Hiring Contractors.

9.   Continuously Review

It's important to remember that the business environment is not static. It is important to have visibility and regularly review the efficiency and ROI of hiring your contractors in order to adjust your strategies accordingly.

10.   Leverage a Contractor Management Company

To help you keep on top of the visibility and daily management of your contractors, allowing you to;

• Focus on Core Competencies: By delegating the intricate details of contractor management to specialists, businesses can focus on their core objectives and strategies.
• Streamlined Operations: Managing individual contractors, especially when dealing with multiple projects, can be challenging. A contractor management company can simplify the process, ensuring contracts, payments, and compliances are in order.
• Cost Efficiency: A contractor management company can help manage billing efficiently, and even assist with tax implications, ensuring that companies get the best value for their investment.
• Risk Mitigation: Contractor management services ensure that all legal and compliance matters are addressed, significantly reducing the potential risks and resultant costs that can be associated with hiring and managing contractors.

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Hiring contractors offers flexibility, specialised expertise, and more often than not a very  favourable ROI. However, it's essential to continually measure, oversee and assess the benefits to ensure it aligns with your company's objectives and financial goals. 

Oncore Contractor Management Services could be a valuable partner to support you in this journey, ensuring your business gets the best out of its contractor engagements.  

For a real of example of how - read our Allianz case study to discover how we assisted them to effectively manage and oversee their contractor workforce of 500+ saving them 2,000 hours and smashing their ROI out the water.