Did you remember to register for the Jumpstart Management Workshop on Intentional Scalability? 

Thanks for taking this journey with me. It’s vital that we understand why scalability is good, so we take the steps to achieve it. The payoff is huge, even if there’s a steep learning curve.

So far we’ve learned:

• We should be making a lot more money
• Job costing led us down an illogical path
• We have a lot of hangups to unlearn

One of the biggest objections I hear about the low-overhead model stems from pride. Many of you have positioned your business as a collection of hand-picked employees — from the front desk to the back dock and every key position on shows.

This is a major mindset shift. Let’s unpack this issue.

Chapter 4 — Outsourcing Gets a Bad Rap

Outsourcing has gotten a bad rap over the years. When we hear that word, we often think about the loss of manufacturing jobs to overseas factories, giant corporations taking advantage of contract workers, and subpar customer service from overseas phone banks.

Outsourcing is impersonal. It’s off-brand.

However, I’m going to make the case that for you, my readers, outsourcing is a good thing. It will expand your capacity, improve your customer service, and increase your job costs. Yes, I said increase. Hear me out.

Why Would I Want Higher Job Cost?

If we look at several variations of P&L statements from your peers, we see three basic models for capturing Cost of Goods Sold (COGS):

1. Outside direct costs only: In this model, a job could earn 100% gross profit assuming all resources were in-house.
2. Add costs for inside direct labor: Either allocate the labor that was actually used on jobs (moving the remainder down into overhead expense), or treat all direct employees as direct costs all the time.
3. Add all costs related to the delivery of a job, from trucking to warehouse workers to depreciation: This means that in a slow month, your gross profit could be negative.

But direct costs and job cost are not the same thing. We can increase job cost while reducing direct costs. 

Take inside labor expense for example. You have a fixed COGS (FCOGS) from the base salaries of those employees. There is a variable COGS (VCOGS) that derives mostly from overtime. In busy months, VCOGS will spike, while FCOGS always remain static. 

What portion of your FCOGS is never applied to jobs sold? In some companies, it can be as high as 50% annually. Most warehouse workers are not allocated in job cost, and many technical staff spend some portion of their time in the warehouse or otherwise not being billable.

BTW: Every hour a technician spends in the warehouse increases the likelihood that they’ll be in overtime on show-site. Ouch.

Remember, job cost is a fact of life. Overhead we can control.

What About Our Quality of Work?

If you can’t imagine a freelancer who’s better at their job than your best employee, then you haven’t worked with true professionals. There are a lot of freelance posers out there — even more in the current market of super-low unemployment. 

Here’s what professional freelancers have to say about many of the companies that try to hire them: “These guys are posers. I only work with pros.”

There, how did that feel?

Experience and professionalism really don’t cost more money, but freelancers with these qualities do expect more from you. Event production companies that have their act together are much more successful at recruiting and retaining the best freelancers.

When the best freelancers want to work with you, running a scalable business becomes even more rewarding.

Scalability is more than a financial formula. You have to operate your business differently. Good systems and processes are critical because you can’t just throw a bunch of labor at a pile of gear and hope a show emerges.

What this could mean for you is investing more in the expertise of your core team. How does this jibe with keeping overhead down?

I’m glad you asked. That’s Chapter 5.