You already know that using business process outsourcing and off-shore virtual staff can greatly reduce compensation costs. For example, our company, ExDigita, typically saves companies 85 – 90% on tech staff costs. But have you thought about how such dramatic savings on compensation costs can add Enterprise Value to your company – and possibly be a significant factor in your company’s ultimate destiny?
Let’s consider a case study that is quite typical of our own work providing business process outsourcing and virtual tech staff for companies in the US and elsewhere. I’m using an example of a Media Buyer or Advertising Operations Specialist. But this also applies to Web Developers, Online Researchers, Tech Support Staff, Digital Agency Staff, and other virtual staff we provide to our clients.
An experienced Media Buyer or Advertising Operations Specialist in California or New York typically costs around $75,000 in annual salary. Total Annual Gross Cost of Employment for companies in California and New York is typically calculated as base salary x 2.25, to cover gross compensation, cost of benefits, cost of office space, equipment, incremental operating expenses, etc. This does not include recruitment, relocation, management, or training expenses, all of which could increase the multiplier well beyond 2.25X. But let’s stick with the commonly used 2.25X multiplier.
Based upon the above assumptions, the typical annual gross cost to a company for a $75K annual salary Media Buyer / Ad Ops Specialist (or other staff) is $168,750. We provide our clients with highly-trained, Google-certified virtual Ad Ops / Media Buyers, who perform at US standards, for an average all-in cost of $18,500 per year.
Companies using business process outsourcing and virtual Ad Ops / Media Buyers (or other staff) save $150,000 per person per year. This $150,000 in cost savings drops directly to a company’s bottom line. EBITDA increases by $150,000.
Currently, public ad tech companies have Enterprise Value / EBIDTA averaging around 20X. Thus, an increase of $150,000 in EBITDA can increase Enterprise Value by $3,000,000. For public ad tech companies, Market Cap / Enterprise Value currently averages close to 2X. Thus, an increase of $150,000 in EBITDA can increase Market Cap by $6,000,000.
A company that uses ten virtual staff can increase Enterprise Value by $30 Million, and, if a public company, can increase Market Cap by $60 Million. A larger company engaging fifty virtual staff could add $150 Million in Enterprise Value and $300 Million in Market Cap. Valuation multiples may be lower for private ad tech companies than for public ones but, still, the fact remains that using business process outsourcing and virtual staff can add very much incremental Enterprise Value. And, considering that engaging virtual staff has relatively little risk, with a very high probability of success, the risk-adjusted ROI of using virtual staff is unparalleled for creating incremental company value.
Think about the ultimate impact this significant value creation can have on a company. For most venture companies, the ultimate objective is to have a successful exit event to earn big payouts for investors and employees. But very few companies achieve successful exits, and few investors and employees realize their ultimate objective in investing in or joining a company. Consider what might have happened had all the failed venture companies used virtual staff as a significant portion of their overall staffing. Assume a company with one hundred or more staff in the US or other high-cost country had engaged virtual staff for 50 positions. A company could have saved $7.5 Million in operating expenses annually, and $75 Million over ten years. These cost savings could have been invested in more product development, more marketing, more technology licensing, business development deals, etc.
And here’s an interesting irony: with some of the money saved by using virtual staff, companies can have more cash available to make key hires locally, including senior executives that a company might not otherwise be able to afford. Just a few key hires can make the difference of a company ultimately finding exit event nirvana. How many company managers have ever considered that the annual cost savings from using virtual staff can cover the cost of hiring key C-level executives?
One common reason why most startups never achieve their desired exit is that they burn through their cash too quickly, and often fail to get additional funding. What if by using virtual staff they could have had another year or two to develop and market their product? Or maybe a company failed to demonstrate a clear path to profitability, thus, making it unattractive for further investment, as an acquisition target, or as an IPO candidate. Using virtual staff can help companies radically alter their cost structure and projected profitability to the point that it can be a factor in making them an attractive candidate for additional financing, acquisition, or an IPO.
I’ve been working in the online venture ecosystem for twenty years. I’ve seen almost every possible scenario happen for tech ventures. My own experiences as a serial tech venture entrepreneur inspired me to help start a BPO / virtual staffing business that could help tech ventures’ chances of fulfilling their entrepreneurial dreams. I’ve seen the profoundly positive impact business process outsourcing and virtual staffing can have on tech companies, both for startups and for more established companies. I encourage tech company executives to fully leverage the power of business process outsourcing and virtual staffing to help their companies grow, succeed, and reach their ultimate objectives.