Outsourcing Search Marketing to Low-Cost Labor Destinations

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The 2008 US Presidential election campaign may very well feature outsourcing as one of the important debates; however, it would be wrong to assume that only telemarketing or programming jobs are outsourced. Search marketing jobs are also outsourced to low-cost labor destinations.

The trend started in early 2002 after the dot-com bust and before the Google IPO. People started realizing the importance of search engine optimization and how large a role it can play in growing an online business. The first set of entrepreneurs used search engines like Google and AltaVista to check for individuals or companies based in countries like India and the Philippines who could handle SEO projects. It is around this time that a few SEO agencies also started outsourcing link building projects (which are very labor-intensive) to companies in India.

However, the results were mixed. As expected, along with the genuine companies, there were some fraudsters who were out to make a quick buck on the Internet. In cases where people got burned, there was no legal recourse as these fraudsters were based outside the United States and required payment via wire transfer or a Western Union money transfer.

But the basic logic of outsourcing is fundamentally strong and can be a sound business practice. So what began as an experiment five years ago is now a full-fledged industry. But is cost the only driving factor for outsourcing?

Why Do Individuals Outsource Search Marketing?

High Labor Cost - The biggest reason small businesses embrace outsourcing is because of the relatively high cost of labor in the US. Search marketing vendors typically bill anywhere from $50 to $500 per hour. Compare this with the $10 to $20 per hour that outsourcing vendors charge and there is obviously a significant cost advantage.

Not Enough Attention for the Smaller Advertiser - Many good search marketing agencies have more work than they can handle and hence they try and move up the value chain. This forces them to concentrate on the bigger fish and not on smaller advertisers. Smaller advertisers get a better response from outsourcing vendors, which makes them feel valued and gives them a comfort level.

Why Do Agencies Outsource?

Shortage of Skilled Manpower - Search marketing is a relatively new industry. Although there are a lot of talented individuals who understand this industry, most of them either have their own company or are doing affiliate marketing to make money. One option is to train people from allied industries and bring them on board, but this can be a long, cumbersome process.

Cost Advantage - Most search marketing agencies try to extract 2,000 billable hours a year from their employees. The cost to a company for one such employee is a minimum of $100,000, for a cost price of $50 per man hour. To make a profit, the agency would obviously try and sell this for anywhere from $75 per hour to $500 per hour based on their internal revenue calculations. By outsourcing some labor-intensive tasks for $10 to $20 per hour, agencies reduce the cost to their company and improve their margins.

Core Competency – Very few agencies have core competencies of both SEO and pay per click, but most of their clients or potential clients will want both services. Partnering with a local company can be a conflict of interest or can help create a future competitor. In such a case, agencies prefer to work with outsourced vendors. This way, they have an additional service to cross-sell to their clients without worrying about losing them in future.

No Benefit Costs - Full-time employee benefits like pension, healthcare, and social security are a considerable cost to an agency. By outsourcing, agencies can save on some of these costs.

If your company decides to investigate outsourcing, it is advisable to do your due diligence. Here are some tips for small businesses looking to outsource:

Individuals vs. Companies - a company is usually preferable over one individual. One-man shows can bring in the element of temperament, and your support level will depend on how busy the individual is. With a company, there are a group of people involved who are unlikely to all vanish in a day. With individuals, their personal problems can affect the completion of your project.

Case Studies, References, and Testimonials - Always ask for one or two case studies and be sure to verify them. Ask for a few references and testimonials. Call up references and verify those testimonials.

Time Zone – Most outsourcing vendors are working in different time zones. Ask them if they have people working in US time zones, and give preference to vendors who have people working in your time zone.

Local Contact Number – Does the vendor offer a local US contact number or a toll-free number? If not, remember that long distance calls are expensive.

Payment Options – If the vendor accepts only wire transfers or Western Union money transfers, beware! Ask for a credit card payment option (at least for the initial stages of work), so if things do not work out or if there is no service delivered, you retain the option of a charge back.

Reporting and Support - Ask your potential vendors about the frequency of reports and the type of customer support (email/instant messaging/telephone) they offer.  Email is the most common form of support. However, make sure that the vendor has a turnaround time of 24 hours for email support. Some vendors offer instant chat support. If so, ask them about their availability.

Most outsourcing vendors have people working in two or three shifts and hence should offer you some form of support in a US time zone. Although not many offer voice/telephone support as a matter of course, they might offer it for escalated problems.

In addition to the points above, agencies should also consider the following before outsourcing:

Private Label Service – Ask whether the company offers a private label service, so that reports sent to you are already branded in your company name. This saves you time and effort inserting your logos and other brand elements. Also ask if your clients can get email support in your brand name. While this may not be possible for one or two projects, it should not be difficult to get this support if you are outsourcing multiple projects.

Confidentiality and NDA - It’s very important to sign a confidentiality and non-disclosure agreement to prevent your clients being targeted directly if you stop working with the agency. Include a clause which says that the company cannot target your clients for a period of two years after the expiration of the agreement and that this clause stands even if you stop working with the agency.

Experience Working with Other Agencies - Ask if the company is working with any other agencies. There is a lot of difference between working with an end client and an agency, especially because of privacy and confidentiality issues. Although it’s difficult to get references of agencies (especially because of non-disclosure agreements), try and get references of agencies which are in another part of the world. For example, if you are based in the US, ask if the company is working with any Canadian, UK, or Australian agencies.

Define the Scope of the Work – It’s very important to define the scope of the work or the tasks you want to outsource, to make it easy for the other company to understand your requirements and deliver on those.

Employee Strength and Experience - Check out how many people the company employs and ask about their overall work capacity. This will help you decide whether this company can handle future volumes of work you may have.

Direct Clients vs. Agencies - Ask the company what percent of their clients are direct vs. agencies. The bigger the agency percentage, the better for you.

Exit Clause - Make sure the agreement has an exit clause if things do not work out as well as you expected.

In my experience, when two companies begin to work together, the first month or two are always challenging. This is because both companies are in the process of learning and understanding the work culture and functioning of each other. Once this phase is over, things should move smoothly.

Most often, agencies prefer to work with a single company. This makes sense because it’s easier to manage. However, sometimes working with a single company might not be sufficient, and you will need to look at having a second alternative.

Agencies, in particular, can pursue another alternative, following in the footsteps of Google, which opened a Research and Development centre in Bangalore (May 2004) and another office in Hyderabad (November 2004). The Hyderabad office handles global support for Google AdWords advertisers and AdSense publishers. I know of at least one small US agency which tried to set up a local team out of India, but failed because of very high attrition rates in the Indian IT industry.

To conclude, outsourcing search marketing to a low-cost labor destination should help you save money and in many cases provide superior service. However, you need to do your due diligence before selecting a vendor to ensure the fit is right. Outsourcing should not be seen be a threat for US-based agencies; instead, they should use it to their advantage by outsourcing labor-intensive tasks and use their regular employees as the crucial link between their clients and outsourced vendors.

About the Author

Milind Mody is founder & CEO of eBrandz Inc (www.eBrandz.com) and can be reached at milind@eBrandz.com. eBrandz has been working as an outsourcing partner with agencies and clients since 2003.

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