Forum Discussion
Subcontractors vs Direct Labor
Would you consider hiring subcontractors instead of hiring direct labor when talent is hard to find in your local market? My business has had a lot of success partnering with other companies to complete specific projects. In our service area, the collective workload exceeds the workforce so there is a general sense of camaraderie vs competition.
What are you seeing and what has worked in your business?
14 Replies
Sub contracting has its perks but also has its drawbacks. i would recommend subcontracting for the following reasons:
- if you operate with a low overhead and act entirely as a "GC" over subs, it can allow you to make a profit without investing in the infrastructure of a business.
- If your workload is more then your staff can handle and only do so until you hire more staff
- If you are subbing someone to execute a niche service that you are not yet set up to do in-house.
Keep looking for good hires, they're out there.
Great breakdown of the pros of subcontracting! I like your point about using sub contractors for niche services and overflow work. How do you decide when it's time to hire in-house instead of relying on sub contractors?
Great information.I totally agree with you.
We try to avoid subcontracting. We've noticed that most companies that rely on subcontractors end up sacrificing the quality of their work, especially in the cleaning industry.
It's nicer to work with an employee who feels like they're obligated to listen and follow rules
Love to hear that there is that general sense of community over competition in your local area. Following along to hear more re: subcontractor experiences/thoughts!
I’m in Calgary, Alberta and out of the 25 crews doing snow removal last year, 80% were subcontractors. Employees did some of the more delicate commercial jobs, but the main benefit of employees vs subs is I for the “no questions asked” aspect. With subs it’s up to them to take the route or the site, but I can take chances and experiment with employees.
The benefit of Subs is that most people who are responsible and reliable will end up opening their own company anyway. I take it a step further with subs who have suck for a few years and I will “trade” customers with them so they can focus more on my customers while other subs do their customers and everyone saves on travel time.
That’s “Stuck for a few years” not “suck” 😂
That’s a really smart way to balance the strengths of both subs and employees! Have you found that partnering with other businesses has been more effective than hiring direct labor, especially as your workload grows? Would love to hear how that’s impacted your business!
We avoid using subcontractors. You never know the quality of work you're going to get from a sub contractor and can risk giving your company a bad name over someone else's work. If there's going to be a mistake, I'd rather have to fix mine/my employees work over someone's else's. A sub contractor may also not have the same level of care towards a client that you do resulting in them not wanting to go above and beyond.
I agree about the quality issues, but would also add that we've lost future work to subcontractors who promote their own interest's over my company. But yes, the risk would vary based on the industry and the relationship that you can build with the subcontractor. We've generally been successful having a few competent leaders and then hiring inexpensive laborers to work with them when we need extra capacity.
We avoid subcontracting at all costs. I rather slowly build a team over a long period of time to build a system I can control and train to my business specification. Also, I would rather interview 1000 people than use subcontracting.
It definitely varies by business. I have a maintenance (landscaping and snow removal) and construction (mostly remodels, average job size $25k):
- Recurring maintenance work - skew towards employees
- One off job based work - skew towards subcontractors
On the construction side of our business, we have a small base of employees, mostly carpenters and painters, who are great culture fits and versatile (for example - most can drive a plow truck). But the vast majority of construction expenses and billing comes from specialty subs.
From a financial perspective, many business owners - when looking at the cost of employees in pricing work - do not always acccount for their full cost beyond their hourly rate or base salary. The full cost includes:
- Payroll taxes
- Workers comp
- Non-billable time (travel, admin, equipment maintenance, etc)
- Any take home vehicles you might provide your employees
Billable rates for employee should be based on target gross margins accounting for those additional employee related costs.
for the past 5 years we had relied heavily on subcontractors. Not all SC are bad, matter of fact some can be very good. We managed to have a small group of outside labor that we would use and it worked out pretty well. at the time maybe 5-10% was in-house labor. Fast forward to 2024 I had a goal of 80/20 in-house/SC, and it turned into a disaster. Although our profits were way up, the work load became too much and that added profit quickly dissolved because we couldn't handle as many jobs in a work week. We realized that a 40/60 split was much more manageable. To keep QC we reduced our SC pool to a select few who provide the best service and "don't just show up". We found this to be a sweet spot. It allows to keep work going with our SC crews and while we continue to build our in-house crew. Our goal for 2025 is to flip it to a 60/40.
This is brilliant, I love it. I want to do the same thing based on the workload at a later date but start off with in-house and eventually have some work we contract out if it makes sense.
