You Ask, I Answer: Agency or Freelancer?

In today's episode, Ali asks, when should we use an external agency and when should we use freelancers? That's a really interesting question because there's a whole bunch of different ways to answer this. You have some resource deficiency in your own organization that you can't address, and therefore you can't get business done without filling that gap somehow. And your two main resources are a partner company and a partner individual, freelancer. Which one you choose, I think depends to some degree on the type of need.

Fundamentally, there's two gaps that we're looking to fill, right? We're either looking to fill a time gap, meaning we have the capabilities to do these things. We just don't have the time, right? We don't have enough people to get all the work done. That's one gap, the time gap.

The second gap is a skills gap, saying we have the we have enough people on staff. We have enough time, but we don't have the skills to pull it off. So if you were to think about something like exploratory data analysis or machine learning modeling, those are things where you might not have those skills in-house. And so you would bring in a partner of some kind to fill that gap. And of course, you can have a situation where you can have both a lack of time and a lack of skill.

Generally speaking, when you hire a freelancer, you are hiring for a skill that they have that can backfill mostly time issues, right? Like we're creating content marketing. We've got four writers, but we really need seven. So we're going to bring in three additional freelancers. That usage of the contract individual, the partner individual, lets you expand your workforce effectively, right?

It's like adding more employees. When you bring in an agency, you're less bringing in more employees and more bringing in like a different department almost, like a different entity. And that tends to be better suited for a gap in skill, right? If you just don't have the skills on a team to do machine learning modeling, you bring in an agency that you will have uh do those things. There's also an aspect of risk involved, right?

Freelancers are fairly low risk, right? They're individuals that you bring in. Um maybe they do the thing, maybe they don't do the thing, but because they're contract individuals, everything is work for hire and everything is uh at will, meaning tomorrow you can say the freelancer, you know what, we're good, we don't need any more help, so uh our our work here is done for now. And you know, uh presumably uh that would be in the contract that you both signed. With agencies, because it's a larger entity and it's typically more expensive than freelancer, you as the purchaser of services can ask for more.

You can say, hey, I want a certain minimum level of quality, I want a service level agreement. I want this, this, this, and this as part of the contract. And if the agency, um, the agency will negotiate and say, okay, well, if you pay this, you can get this, if you pay this, you can get this. If you want evenings and weekends, we can do that, but it's going to cost you X more percent more on the contract because we know we have to bring in our resources to provide that coverage. So in cases where you have higher risk, having an agency, which is a company as a legal entity, may be the better choice because you can require them to accept more of the risk, right?

Uh a freelancer, it's really tough to say, like, hey, um, you know, we need you to work evenings and weekends. Uh, you may get some freelancers who be willing to do that, but it's a lot, I think, less convenient to do that than it is to simply put that in a scope of work of an agency and say, hey, you will provide 24 by seven coverage of this contract, and then if the agency doesn't do that, you can have it, you can then enforce a service level agreement and say, hey, this is what we agreed to, this is what you delivered, and these are the gaps between the two. So I would say those are generally how you might want to think about deciding when to use an agency or when to use a freelancer. Uh, one is filling predominantly time, um, adding effectively additional employees, and one is bringing in capabilities that you might not have. Another aspect is scale.

Um, when you hire a freelancer, you know that you're hiring a person, right? This person can do this thing, and and they effectively have a scale, right? They have a scale limit. They're they're one person, and you know, or 40 hours a week or even 60 hours a week, you can get stuff out of them, but they have limits. Theoretically, theoretically, an agency doesn't have a scale issue.

You say, here's $20,000 a month. I expect this amount of output. Whether it's done by one person, three people, five people, we don't care. This is what we're buying. We're buying this level of output from you.

And it is then incumbent upon the agency to figure out its own staffing internally as to how to meet that output. That can get really expensive because some agencies do bill by the hour. They bill by their labor costs. So you have an account coordinator who bills at 125 an hour. You have an account manager who bills at 175 an hour and so on and so forth.

And that you know those time-based agencies that can get real expensive real fast. But fundamentally, an agency theoretically does not have a scale limit. As long as you're willing to pay more, you theoretically can get as much work out of the agency as you want. Uh, and again, that's a limitation that a freelancer simply can't do because they're just one person. So those would be my answers.

Um, I think there's a lot of wiggle room. I think you can certainly hire a freelancer based on a skill gap that you don't have. Uh, and that might not necessarily be a bad idea. You might even go sort of a try before you buy, right? You hire a freelancer who to build statistical models.

You find this freelancer, they're really terrific, and you say, hey, look, what's it gonna cost us to just give you a full-time contract, right? Uh, and you convert them to an employee. Um, that's another aspect, by the way, with agencies that it can be very challenging. It can be if it's not specified in the contract, it can be a very, very, very ugly fight uh if you actually want to hire contract uh uh talent from uh an agency. Some agencies, the more forward-thinking ones, have essentially a uh a purchase program, right?

Hey, if you hire one of our people, you have to pay us 40% of their base salary as the referral fee, right? Because you're set you're effectively taking talent away from us. Um some agencies do have that that provision built in. Whereas freelancers, you know, it's an individual. So you you could theoretically make a very persuasive argument to say, like, yeah, we'll pay you know whatever, whatever you want.

We just want you to come work for us. So lots of different considerations about agency or freelancer. Um there are there are some agencies that do charge a lot of money, and those are cases where you might look into the value that you're getting and say, you know what, we might be better off with a uh stable of freelancers. We would have to absorb the management cost of managing the freelancers and the freelancer relationships, but you might make that up on the back end because you're not paying $225 an hour for somebody's time. Um you might be paying a freelancer, you know, market competitive, but still substantially less because agencies typically charge agencies typically charge anywhere from two to four X what they're paying.

So if they're paying a person forty thousand dollars a year, which is about 20 bucks an hour, they're gonna bill out that person 100 bucks an hour, 125 an hour, and so on and so forth. Um with a freelancer, uh you're probably only looking at most of the time, you know, uh 1.5, 2x, maybe 3x um their rates and stuff. So you for the same skill set, you might be paying less. Again, it's highly variable, it depends on the market you're in. But those are considerations too.

The one thing I think is really important to say is no matter whether you've got an agency or a freelancer, you've got to be super super clear about deliverables and expectations, setting expectations, community expectations. And when you communicate an expectation and it's not met, you gotta let people know. Um almost all contracts that you sign that if they're any good, um, do have some kind of provision to say, like, look, you didn't meet the objective, right? You didn't do what you said you were going to do. And so we've got to figure out whether there's a fee reversal or something for that.

And again, those are cases where agencies probably will have more documentation than some freelancers will about how to handle disputes uh when it comes to output. Um, so that's something to think about as well. So, really good question. We could spend a whole bunch of time on this, uh, but those would be some good starting points to think about. If you like this video, go ahead and hit that subscribe button.