You Ask, I Answer: Agency or Freelancer?

Ali asks, “When should we use an external agency, and when should we use freelancers?”

You Ask, I Answer: Agency or Freelancer?
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Christopher Penn 0:13

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.

The reason you bring in any external party is because of a lack of resources, right, 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 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 time gap.

The second gap is a skills gap saying we have the we have enough people on staff, we have enough time, we don’t have the skills to pull it off.

Right.

So if you 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 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 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, 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, may maybe do, maybe they do the thing, maybe they don’t do the thing, but because their contract individuals, everything is work for hire, and everything is at will meaning.

Tomorrow, you can say the freelancer, you know, we’re good, we don’t need any more help.

So our work here is done for now.

And presumably, 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 at the agency.

The agency will negotiate and say okay, well, if you pay this, you can get this, you can pay this, you can get this, if you want evenings and weekends, we can do that.

But it’s going to cost you X percent more on the contract, because we have to bring 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? A freelancer, it’s really attempt to say like, Hey, you know, we need you to work evenings and weekends, 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, 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 a Wendy’s freelancer, one is filling,

Christopher Penn 4:51

predominantly time, adding effectively additional employees and one is bringing in capabilities that you might not have another Their aspect is scale.

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 skill limit, they’re one person and you know, 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 expected 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 build 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 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.

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.

I think there’s a lot of wiggle room, I think you can certainly hire a freelancer based on the skill gap that you don’t have.

And that might not necessarily be a bad idea, you might even go to have a try before you buy, right you hire a freelancer who to build statistical models, you find this freelancer, they really terrific.

And you say, hey, look, what’s it going to cost us to just give you a full time contract, right, and you convert them to an employee.

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.

If you actually want to hire contract talent from an agency, some agencies are more forward thinking ones have essentially a purchase program, right? Hey, if you hire one of our people, you have to pay us 42% of their base salary as the referral fee, right? Because you’re, you’re effectively taking talent away from us.

Somebody just needs to have that that provision built in.

Whereas freelancers, you know, it’s an as an individual, so you, you could theoretically make a persuasive argument to say like, yeah, we’ll pay you, whatever, whatever you want, we just want you to come work for us.

So lots of different considerations about agency or freelancer.

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, you might be better off with us a 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 backend, because you’re not paying225 an hour for for somebody’s time, 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 4x, what they’re paying, so if they’re paying a person, you know, 40,000 a year, which is about 20 bucks an hour, they’re gonna bill out that person 100 bucks an hour,125 now, and so on, and so forth.

With a freelancer, you’re probably looking at most of the time, you know, oh, 1.52x, maybe 3x.

Their, their rates and stuff.

So for the same skill set, you might be paying less, again, highly variable depends on the market you’re in.

But those are considerations to 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’ve communicate an expectation is not met, you got to let people know.

And almost all contracts that you sign that if they’re any good, do have some kind of provision to say like, Look, you didn’t meet the objective, or you didn’t do what you said you were gonna do.

And so we’ve got to figure out whether there’s a fee reversal or something for that, and, again, those cases where agencies probably will have more more documentation than some freelancers will about how to handle disputes when it comes to output.

So that’s something to think about as well.

So really good question.

We could spend a whole bunch of time on this, but those would be some good starting points to think about.

Christopher Penn 9:53

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