In-House vs. Outsourcing: Total Cost of Ownership for Data Entry

Do you know that the total cost of owning a data entry team will astonish you?

As time goes on, you will find out that the initial costs of establishing the team are just a fraction.

Total cost of ownership (TCO) will give you an idea about the actual expenses of an asset throughout its lifespan. This blog will help you identify and calculate the TCO of in-house and outsourcing data entry.

You will also be able to choose the best option for your business between in-house and outsourcing data entry.

Understanding Total Cost of Ownership (TCO) in Data Entry

Running a business requires smart management of information. Strategies and policy development deeply rely on data. TCO is a helpful tool for businesses to determine different aspects and run a smooth operation.

Definition and Overview of Total Cost of Ownership TCO

Total cost of ownership (TCO) is the sum of all direct and indirect costs of owning any asset through its entire life. Initially, it includes the cost of buying or establishing at first, current and future operational costs and all the ancillary costs.

In business, owning an asset can be significantly higher than the cost of purchase. For example, you bought a minibus for the transportation of your employees. It costs you $10,000 to buy it. Each year for maintenance, you will need to spend $1100. On average, another $2000 will be spent on gas and $30,000 for the driver’s salary.

At first glance, you will make an estimation that these are all the costs you will need to cover. But there are some other costs related to operating the mini bus that you haven’t calculated yet. For example, the parking space your bus takes has financial value as well.

Similarly, for data entry, TCO is the overall cost of operating the team. The operation could be solely operated by your business itself or by outsourcing data entry services from a service provider. In both cases, TCO covers all the direct and indirect costs of the operation.

A third option is that you can allocate data entry-related tasks to employees across different departments as extra duties. But this may not give you a good result.

Direct and Indirect Costs in Data Entry

Direct Costs	Indirect Costs
Directly linked to establishing the operation	Not directly linked
In most cases, this cost varies	Fixed or partially fixed
Buying or development costs	Salary, fees, utility costs

Direct Costs

Direct costs in terms of TCO indicate the costs that are directly linked to an asset. From the example we talked about in the definition of TCO, the price tag of the minibus is a direct cost.

In a production setup, direct costs generally vary a lot, but for asset ownership, the variable rate is low. Because in the production lineup, direct costs depend on the prices of raw materials, power cost, gas price, price per unit produced and other factors. But for ownership, it’s only the asset price.

If your business has a dedicated data entry team, then direct costs will refer to the total cost of setting up the team. This includes equipment, software purchase and all the different expenses that are needed to start the operation.

If your business is outsourcing a data entry virtual assistant, the direct costs are basically the consultancy and service fees. In most cases, outsourcing service provider are keen to keep all the costs under one item. It makes sure that  your business doesn’t have to suffer from any miscellaneous fees.

There is another option that businesses take. Some businesses alocates the data entry tasks divided into different departments. Direct cost in this type of operation seems low.

But the process becomes risky as the employees take on the extra load. The chance of data entry mistakes significantly increases in these cases.

Direct costs involved in data entry are:

• Equipment costs
• Employee salary
• Software purchase cost
• Consultation fees

Indirect cost

Indirect costs are the expenses that are not directly linked to owning an asset. For a production lineup, in most cases, it doesn’t vary that much. But for operations like data entry, these costs are variable.

Suppose you have a dedicated data entry team for your business. Indirect costs for these will be:

• Space rent for the operation
• Administrative cost
• Office supply cost
• Equipment depreciation
• Recovery cost of data entry errors
• Agree to an upsell

When businesses outsource data entry related services, the chance of getting a better result increases. An expert data entry service provider is good at organizing junk leads to all data processing-related work. This reduces indirect costs because results become more accurate.

Role of Accuracy, Speed and Error Handling in Cost Calculation

Cost calculation is the process of calculating all the direct, indirect, fixed and variable costs related to any operation, project, product or service. It’s important for businesses to stay efficient and not get overrun.

From a business perspective, cost estimation plays a crucial role in staying competitive. A cost calculation is generated before starting a project, production or service inauguration.

The process evaluates all the possible outcomes for expenses and calculates whether the production cost will be feasible or not. Thus, the accuracy and estimation time are important for business.

Cost Calculations are Generally Estimated Through

• Comparing with similar projects
• By developing a model
• Mean result of three-point estimation

Accuracy in Cost Calculation

Accuracy in cost calculation gives an organization an estimation of running the operations. For data entry operation scenarios, this is vital because the overall cost of this operation is greater than the establishment cost.

Cost Calculation Accuracy is Important Because

• It helps identify proper resource management and allocation
• Good for business efficiency
• Reduces risk factors

Importation of Speed in Cost Calculation

Speed in cost calculation is important to get a cost estimation in time. In fast-paced business environments like fast-fashion, grocery or food service, making the estimation on time is important to stay ahead in the competition.

Speed in cost calculation helps

• Save money and resources
• Introduce the service or product in advance
• Gain client satisfaction

What Is In-House Data Entry?

In business, the term in-house refers to doing a project or activity entirely by personal staff or employees. Similarly, in-house data entry means doing all the data entry-related tasks with a business’s own personnel.

If a business has a dedicated team, then the direct costs are lower than the overall TCO. If your business doesn’t have a dedicated team and some employees do all the data entry related work, then the direct cost gets even lower. But indirect costs become significantly high.

Direct Costs for In-House Data Entry

Direct cost for data entry depends on the type of business operation. If your business has many small clients with high order volume, you need a large in-house team.

Setting up a big team means higher direct costs. One key disadvantage of setting up a team from scratch is that it takes time to develop expertise and skilled employees. And during this development process, lots of things can go wrong.

If the operation is small enough to cover all the tasks itself without a dedicated team, then the initial direct cost reduces, but the indirect costs increase significantly.

For an in-house data entry team direct costs occur for:

• Training and development
• Higher employee turnover rate
• Computers and equipment purchase
• Salary, healthcare and different facilities for employees
• Licensed software purchase
• Data onboarding costs
• Running a data hygiene procedure
• Recruitment cost

Eventually, running an in-house data entry operation requires a large investment. But there are some key advantages like having complete control over information, confidentiality, ownership and more.

Indirect and Hidden Costs of In-House Data Entry

Indirect and hidden costs for in-house data entry refer to the long-term costs of operation. For both a dedicated and a common in-house data entry team, indirect costs are significantly higher than outsourcing it from a service provider.

For a dedicated in-house team, it takes time for developing skills and expertise. During this development process, employees can make mistakes.

Junk lead management, batch processing, data enrichment and lead scoring types of tasks becomes nightmare for an unskilled team. They make errors that can lead to bigger issues like false financial reporting, faulty tax returns and inaccurate forecasts.

Resolving these issues can be expensive. Faulty reports can damage your business sales and product efficiency, financially affecting the operation.

Some of the indirect and hidden costs of an in-house data entry operation:

• Human error resolving costs
• Management effort and resources needed for operation
• Scaling difficulties like, when the team size needs expansion, it could cause more than usual
• System and software update costs

What Is Outsourced Data Entry?

Data entry is the whole process of inputting, formatting, sorting and processing information into a database or system. If one appoints a service provider to complete all these tasks, then it is called outsourcing data entry.

Data entry outsourcing is becoming popular due to its high efficiency and low price rates. It’s budget friendly compared to owning an in-house operation.

Outsourcing data entry can reduce costs up to 50%. But it can be even more efficient than an in-house operation.

While accuracy is an essential element of data entry, outsourcing it is a better option. Similar to owning a dedicated in-house team, outsourcing comes with direct and indirect costs as well.

Benefits of outsourcing entry service:

• It reduces data entry mistakes to 0.1%
• Fairly less expensive than owning one operation
• They maintain data hygiene
• Expert in master data management
• Secure your data privacy
• Doesn’t require heavy investments

Direct Costs of Outsourcing Data Entry

Outsourcing data entry services doesn’t have a big list of expenses compared to owning an operation. In most cases, data entry service providers charge a fixed amount for the agreed service.

If your business is booming then you require more information to handle. The service provider will be happy to scale up the operation for you. You just need to upgrade your agreement and payment policies.

But in the same case, if your business had to upscale the operation by yourselves, it could cost you 40% more than outsourcing it.

Common direct costs for outsourcing data entry :

• Service fee for the operation
• Consultancy fee
• Service upgrade fee
• Onboarding fee while starting the process
• Your sudden requirement to update technology and automation

In outsourcing data entry, the only direct costs are very low, aside from the service fee. Unless you need to upscale the operation or require any extra service beyond your agreement, you have only one direct cost. And the only cost is your service fee.

Hidden Costs of Outsourcing Data Entry

Hidden costs in outsourcing data entry are close to none. As the outsourcing data entry industry is booming, service providers try their best to stay transparent.

But similar to direct cost, a sudden spike in tasks can cause some minor hidden cost once in a while. The excess overload that is caused by your business’ rapid growth can generate some system issues.

For example, the integrated system you and the outsourcer developed is capable of transferring 1 million units of data every month. But your business is now doing really well and the data transfer rate has gone up to 1.25 million units.

In this scenario, the internet connection will start lagging and you need to update it. Then this will be a hidden cost for outsourcing data entry.

Apart from this, there are only a few hidden costs for outsourcing a data entry service. They are:

• System updates on both sides
• Technological adaptation, including auto onboarding
• Excess load and scaling issues

Cost Comparison: In-House vs. Outsourcing

Cost item	For in-house operation	For outsourcing data operations	Result / Comment
Direct cost	High	Modarate	Outsourcing costs less than owning an in-house data entry operation
Indirect costs	High	Farey low	Doing in-house data entry also has higher indirect costs
Service/ Salary Cost	Minimum $25 to $80 per hour	Starts from only $5. Even higher service costs less than $30	Outsourcing costs far less
Investment	Requires a big investment to start the operation	Initial investment is moderate	Outsourcing the tasks can save your business a good amount of money, helping the cash flow
Employee Onboarding Costs	High	Close to none	For in-house operation new employee needs time to adjust with the working conditions
Data onboarding cost	Minimal	Moderate	Data onboarding can
Administrative costs	Needs constant monitoring, separate management that costs a lot	No administrative costs needed	Outsourcing saves resources
Scaling costs	It costs significantly high to scale up in-house operations	Scaling up requires a moderate cost	Scaling up in-house operation costs far more than outsourcing
Scaling Complexity	Complexity involves scaling up the operation is massive	In most cases, the complexity level is very low	Outsourcing is easy for business operations
Tax issues	Add extra taxation and paperwork due to employee salaries	Easy for taxation, less paperwork needed	In-house operations are complex for tax-related accounting
Cost fluctuation	Cost can fluctuate due to the use of software and office utility charges.	Room for cost fluctuation is very low. Once a contract is formed, fixed cost rates will be the only expense for the contract period and contract’s nature	Outsourcing helps generate a more accurate cost estimation for the overall company

Real-world Scenarios and Examples of TCO for Outsource and In-house Data Entry Service

Data entry tasks vary from business to business. A small business can have tons of work and a larger business can have fairly low tasks.

Task types also shift with the type of operation. For example, a healthcare business or hospital has to keep information about patients details, doctors’ details, employee engagements, expenses and other information.

Similarly, an IT business’s data entry work will be storing customer details, office appliance records, equipment costs, developers details, work details and more.

For a small house appliance shop, the data spectrum is not that big but the volume is high. For example, inventory management, shelf product lists, sales data, etc.

Now, different scenarios and example analysis will give you an idea about which one is suitable for your business, in-house or outsourcing.

Different Business Scenarios and Suitability of Outsource and In-house Data Entry Service

Startups

Technology is rapidly shifting the tide of business operations. Even the most recognizable business term right now, startups are getting highly influenced by digital marketing and smart operation technologies.

As a startup business, the requirement for data entry varies depending on the type of business. For example, a startup is selling trendy clothings, their data entry tasks will be:

• Keeping customer info
• Inventory management
• Stock forecast and more

Another startup offers people to swap their phones and devices. Primary data entry related to this will be keeping detailed records about device specifications.

In both cases, task type and volume are fairly different. But one thing is common, that is almost all the startups lack capital to invest heavily in one certain asset.

Cash flow is much more important for startups at the beginning. Owning an entire data entry operation is not efficient at all.

Establishing dedicated team need heavy investments but it disrupts casflow. But for a startup cashflow is very crucial. Thus, total cost of owning a data entry team may exceed the startup’s limitations.

Thus, outsourcing the data entry tasks is a much more suitable option for a startup.

Healthcare business

If you’re running a healthcare service, then you are familiar with the intense data records it has to store and manage. From patient history, doctors’ engagement to med supply, the list goes on.

Health services are already complicated and if the management has to administer a data entry team, then it becomes a nightmare. The total cost here is not just about the financial expense; the task itself is far too complicated to operate in-house.

Thus, healthcare businesses are turning to outsourcing various tasks, including data entry. The overall US healthcare industry’s outsourcing is estimated to reach $300 billion by 2030.

Some of the key issues that healthcare services face in the USA:

• Massive shortage of skilled personnel to do data entry tasks
• Comparatively high salary range in the healthcare business
• High maintenance and operational costs
• High asset price rates

Food industry

Data entry in restaurants or a food product retailer keeps records of supplies, expenses, utility costs, earnings, and order lists in a wide range of records.

As per US base salary having a data entry clerk can cost over $45,000 a. Similar tasks, if given to a data entry service providing firm can costs 30-50% less.

A 3-4 person data entry team’s TCO can exceed $200,000 a year. Similar tasks by outsourcing can be reduced to $40,000 a year. So it’s evident that for some restaurants and food retailers, outsourcing would be a wise option.

There are over 32 million small businesses in USA. Not all businesses can afford a dedicated data entry team. But in some cases, outsourcing data entry tasks will not be appropriate.

Fast-paced business

Businesses that operate in a fast paced industry can face problems with outsourcing data entry. Outsourcing agencies can provide a speedy response but for some businesses, the speed may not be enough. For example, drive-through coffee shops can’t keep up with the response of an outsourced provider.

Sensitive business

For sensitive businesses, outsourcing data entry is never suitable. Financial institutions, law firms, stock brokering agencies, defense businesses possess confidential data.

These businesses need to maintain strict guidelines and standards like ISO and GDPR. Now, for businesses like these, TCO doesn’t matter and an in-house operation is a must.

How to Calculate Total Cost of Ownership for Your Business?

Total cost of ownership is the entire cost of owning something. An accurate and speedy TCO gives business key forecasts to develop a strategy.

Total Cost of Ownership, TCO Formula

TCO = acquisition/purchase/establishment cost + (total ancillary costs and expenses x years of useful life) – Resell Value

Acquisition/ purchase /establishment costs :

For an operation like data entry, team development includes all direct costs required to start. For a project, all the direct costs till the end.

And for an asset like the minibus we discussed in the TCO definition, the asset price is the bus price.

Total ancillary costs and expenses

These are indirect costs related to the acquisition, purchase or establishment of an operation, project or asset. For example, the parking space value of the minibus, repair cost every year, gas price and all other expenses needed to operate the bus throughout its entire lifetime.

Resell Value

For an asset, it refers to how much money you can get in return by selling the property after you use it.

For a project it means how much value it created in it’s lifeline financially. For example, a project costs you $1 million to develop but saves you $900,000. Then the TCO of the project will be $100,000.

That goes similarly to an operation as well. For example, to set up a data entry team, it costs you a certain amount. But after the end of the business, the team has saved you from $1 million in fees and losses. And you get back $10,000 by selling the equipment. Thus, the total resale value will be 1,000,000+10,000= 1,010,000 USD.

Example of a TCO calculation

Lets bring the minibus example from the TCO definition section again. You bought a minibus for the transportation purpose of your employees. It costs you $10,000 to buy it. Each year for maintenance you will need to spend $1100. On average, another $2000 will be spent for gas and $30,000 for driver’s salary.

Let’s assume you will use the bus for 8 years and you will get $4000 back by reselling it.

Purchase cost is $10,000.

Ancillary costs (1100+2000+30000)* 8 = 264,800

TCO calculation: acquisition/purchase/establishment cost + (total ancillary costs and expenses x years of useful life) – Resell Value

TCO = ($10,000 + 264,800) – 4000 = 270,800

That means, a single minibus that costs 10,000 dollars to purchase will cost you 270,800 dollars over 8 years of use.

Conclusion

The data entry process can cost you a lot if not handled properly. The total costs of owning a data entry team and outsourcing vary with the business type.

Starting a data entry team without entirely knowing the costs can burn through your cash flow. Because the cost of establishing a team may seem reasonable, but in the long run it can ruin your business.

For some businesses, outsourcing is a better option. It’s not that expensive and highly effective.