What Do You Consider A Proportional Response?

17 replies
I'm going to try to make some folks think a bit with this one. Ultimately,
the question I am putting to you is this...

"What do you consider a proportional response to your business needs?"

Let me now try to give you an idea of where this is coming from.

If you watched The West Wing, there was an episode called "A Proportional
Response" which was the 3rd episode of the series.

In a nutshell, a US plane was shot down and Bartlett met with the Joint
Chiefs to determine what kind of response to make.

The joint chiefs came up with what they called a proportional response
where they'd knock out some military targets and call it a day.

Bartlett was more or less disgusted with the whole scenario. Essentially
he wanted to send the enemy a message that if you mess with the US,
you get your head handed to you.

Ultimately, he was talked into going with a proportional response because
it was, as Leo put it, merciful.

Now, you're probably wondering what this has to do with Internet marketing.

I'm now getting there...and ultimately it revolves around that dirty word
we call outsourcing.

So...picture this scenario.

You have a project you're working on. It's going to be a limited edition
run, meaning only a few units sold and only a few thousand dollars in
income. Let's say, $3,000 in income for a 3 day launch.

Now, you have everything covered as far a product creation but you
need to graphic and HTML work done. You can do it yourself, but because
it's not your strong point, it will take you some time to do. You'd rather
give it to an outsourcer.

However, after giving the specs to several outsourcers, you discover that
nobody will touch the work for less than $1,500.

That's half your profit gone.

So here's the question.

What's the proportional response here? At what point do you say, "screw
it...I'll do it myself" or give in and spend the money?

Remember, we're talking about 50% of your profits shot in outsourcing
costs when you could easily just bank the whole 3K for a few days of
work.

Yes, I know...ultimately it comes down to what your time is worth to
you versus what the outsourcing is going to cost you.

But where do you draw the line on costs as a percent of income.

10%?

30%?

50%?

Where do you finally say, "It's not worth it...I'll do it myself."

Let's put this in really large proportions.

Let's say you were working on a major product, one that will make you
$1 million in 30 days of release.

It will take you 6 months to complete on your own but then the profit is
100%.

You can outsource enough of it to get it done in 30 days, but those
costs will come to 70% of your $1 million.

Do you settle for a smaller payday of 300K in exchange for getting that
money within 30 days or do you hold out for the whole million, waiting until
you finish the product on your own in 6 months?

I realize that everybody is going to have different priorities and thus, we
will get a whole range of answers here.

And that's why I'm asking. I'm curious as to what the majority of the
people here think, especially those who are making big money. How do
they handle these things?

Hopefully, this can turn into an interesting discussion.
#proportional #response
  • Profile picture of the author Alexa Smith
    Banned
    Originally Posted by Steven Wagenheim View Post

    Where do you finally say, "It's not worth it...I'll do it myself."
    Well, I don't/wouldn't, because I can't do it myself. But this means you're not really asking me: you're (entirely reasonably!) asking people who can do it themselves.

    So the rest of my answer is necessarily theoretical ...

    For me, it would come down to a question of how many hours it would take me to do it multiplied by my self-assumed "hourly rate" (which is about $70/$75), compared with what I've decided is the best (i.e. not necessarily the lowest) outsourced quotation for the work. So I think I'd make a fairly mathematical decision about it, really. If the quote I like is $1,500, I'd want it to be taking me quite a bit less time to do than the 20 hours it's "worth", to think about doing it myself.

    In other words, I'm assessing it in terms of the outsourced price compared with my hourly value (and I don't care how much the outsourcee is charging per hour, in calculating that, nor how long it's taking him).

    How much to do you want to do it?

    Is it time that you'd otherwise spend doing something else that would earn enough money to cover it/its anticipated profits? (What's the opportunity-cost, in other words?).

    Would you rather be writing songs instead? And how much potential income is that "worth" giving up, for you?

    What is the virtue of a proportional response?

    These, I think, are all relevant questions ...
    {{ DiscussionBoard.errors[3230619].message }}
  • Profile picture of the author amo992
    This problem could be solved by looking at the definitions of opportunity cost and outsourcing from a microeconomic standpoint.

    You have opportunity cost: cost related to the next-best choice available to someone who has picked among several mutually exclusive choices. (-WIKI)

    Outsourcing: If a firm relies on market purchases of inputs rather than on vertical integration, it can benefit from the specialization and comparative advantage of individual suppliers. Other things constant, the firm is more likely to buy a component rather than produce it if
    1. buying the component is cheaper than making it
    2. the component is well defined and its quality easily observable
    3. there are many suppliers of the component
    (-McEachern MicroEcon 2nd Edition)
    {{ DiscussionBoard.errors[3230641].message }}
  • Profile picture of the author RyanRobinson
    It depends on the skill set and the personality of the product creator. The answer to this question will vary amongst other Warriors like you stated in your post.

    As a web developer myself, I would obviously do the hard work myself and reap the benefits of the 100% profit I will be receiving.

    Then again, there are people who prefer to do it by themselves as they have a definitive idea of what the finished product will be and will get it finished down to the tee. I guess you can call these people perfectionists. Others do it for the sense of achievement and to help develop their knowledge and skills.

    For example, a friend of mine wanted a new kitchen fitted but wanted a door frame done in a certain way. He told the joiner how he wanted it and the end outcome of the door frame was not what he wanted. In the end, my friend decided to do whole kitchen as he knew what he wanted it to look like.
    Signature

    Send me a PM regarding any web design/development work.

    {{ DiscussionBoard.errors[3230643].message }}
  • Profile picture of the author cashcow
    I think, like Alexa said, I would base it against my hourly value, so if I could get it done for less than what I value my time at, I would outsource.

    BUT, another thing would come into play as well....

    If I outsourced and could get the product out faster would that then free me up to get on with the next project and reap the financial rewards of that sooner ...

    Or...

    Is that one project the only thing I have going on. If due to the types of products I make or market demand there would need to be some lag time before I could release another product, then perhaps it is better to do the work myself even if it takes longer.

    I'm not sure if that last part makes sense but, for example, with my PLR products, I usually release so many products per month. I tried pumping out twice as many but it did not double my income, therefore it wouldn't make sense for me to outsource parts of it (I do everything my self now) because it wouldn't result in an increase in profits (I'd actually make less ... except then my time would be freed up to promote my own portfolio of websites but that's a whole other consideration)

    Lee
    Signature
    Gone Fishing
    {{ DiscussionBoard.errors[3230693].message }}
  • Profile picture of the author Paul_Short
    Am I right in assuming that the graphics and html will be part of the product itself? If so, I would look at increasing the number of units sold in the limited run so that overall profit is increased and the $1500 is less of a drain on profit.

    And I would do the work and wait for the million bucks, then invest the $700k in future biz ventures and still have the $300k.

    Paul
    {{ DiscussionBoard.errors[3230698].message }}
    • Profile picture of the author Martin Luxton
      Stephen,

      There is another factor to throw into the pot.

      You outsource it, have all sorts of problems with the outsourcer (shoddy work, missed deadlines, etc) until you say

      "It's not worth it...I'll do it myself."
      Problem being, at that point you are dollars out of pocket (assuming a 50% upfront agreement) and way behind schedule.


      Martin
      {{ DiscussionBoard.errors[3230723].message }}
  • Profile picture of the author MWGrubb58
    I guess it depends on how you value your time and the payoff.

    If I could learn how to do the stuff I needed to do and wait the six months, I'd do it and take the million.

    Boosting the offer so that there would be more profits is a great idea... However, in the above example... if I could replicate the offer in other niches, making a $1500 payday in each one, rather quickly, then I would do them over and over again....

    One thing I learned years ago... It doesn't really matter how much something costs... as long as you make a good profit. 50% now for small numbers is doable...

    But if you were dealing with a very large amount as you say, a million, then I would wait... the payoff is WORTH the wait.
    {{ DiscussionBoard.errors[3230729].message }}
  • Profile picture of the author mikemcmillan
    Hi Steven,

    That's a great question and it's one that almost everyone asks themselves at some point. There are probably a lot of different answers that could all be right.

    Fifty percent sounds like a lot! After all, what if the product fails to pull in the anticipated $3,000? But, you're very experienced so I assume you can gauge pretty well what to expect.

    I think one of the key points you raise is if you do it all yourself to save costs there, you obviously are cutting in to time you might spend on creating another product which might be equally as profitable.

    It's hard to tell without knowing the breakdown of your expected costs. Knowing about you from what I see here on the WF I would guess though that you would write your own sales copy for the product... or at least have strong input on it. You can get graphics on the cheap and maybe you want a mini-site designed, I don't know.

    Without knowing more than I do, my first inclination would be to do as much as I could myself. If I were looking a $3,000 over a 3 day launch, well--I'd be willing to work for $500 a day to save on the outsourcing. I would be thinking in the back of my mind that there is always the possibility that the output of the outsourcing might not be what is expected too.

    I would also look at every way possible to up-sell on the product and have some things in place to promote to the buyers down the road who did come in.

    The other thing I would think about is... are the sales going to come in from people on my own list I promote to, or--are affiliates going to be sending in traffic. If you are getting affiliate traffic then of course you could opt many of them in to your list and market to them on an ongoing basis. If that's the case, your profits could be much more than the $3,000 you rake in up front.

    I'd do as much as I possibly could myself, hire out what I couldn't, and fire away. Your question is much better than my answer, but it's a complicated one to solve indeed.

    In any event...GOOD LUCK! --Mike
    Signature

    I'll help you create a reputation-building evergreen product in any niche and launch it successfully!
    Check it out here.

    {{ DiscussionBoard.errors[3230738].message }}
    • Profile picture of the author JohnMcCabe
      Originally Posted by Martin Luxton View Post

      Stephen,

      There is another factor to throw into the pot.

      You outsource it, have all sorts of problems with the outsourcer (shoddy work, missed deadlines, etc) until you say



      Problem being, at that point you are dollars out of pocket (assuming a 50% upfront agreement) and way behind schedule.


      Martin
      This comes close to my thoughts...

      How confident am I about the outsourcer's ability to deliver on spec and on time? How confident am I that I can do an adequate job?

      Is there any alternative that will get me close to the same results as my prime solution, with enough cost advantage to make it the logical choice?

      In your big bucks example, if I'm confident that my inputs will gather the same results as outsourcing, I take the whole mil...otherwise, I start looking for Plan C, D, E...

      Edit:

      As for your West Wing example, I favor the proportional response. But the reason has nothing to do with mercy.

      Rather, it comes down the answer to this question:

      You go in with all guns blazing, and hit the aggressor with your biggest 'shock and awe' hammer, and it fails to be a deterrent. Now what do you do?
      {{ DiscussionBoard.errors[3230820].message }}
  • Profile picture of the author Marvin Johnston
    From your post, I'm guessing you are not talking about this from the standpoint of someone new to the field; that would add a whole bunch of other considerations.

    To do anything effectively, we need to have resources in place ... either our own abilities or staff/contract workers. I know, obvious.

    Doing it ourselves - Everything that Alexa pointed out.

    Outsourcing - The main question is whether or not the time has been spent to develop a team of outsourcers that can be depended on. Or a network that can give vetted options as to who to use.

    No ability and no developed team of outsourcers - Punt . At this point, I would guess this falls under the category of newbie and perhaps this would not be the best project to start out with.

    Marvin
    {{ DiscussionBoard.errors[3230893].message }}
  • Profile picture of the author CDarklock
    Originally Posted by Steven Wagenheim View Post

    "What do you consider a proportional response to your business needs?"
    1. How much will this cost? (Price p)

    2. How long will it take for me to do it? (Time t)

    3. How long will it take the outsourcer to do it? (Delay d)

    4. What would I do instead? (Value v)

    My driver for this is (v - p) / (t - d) where (t > d). That gives me the net value over time saved. If I don't save time, it's almost certainly not worth it.
    Signature
    "The Golden Town is the Golden Town no longer. They have sold their pillars for brass and their temples for money, they have made coins out of their golden doors. It is become a dark town full of trouble, there is no ease in its streets, beauty has left it and the old songs are gone." - Lord Dunsany, The Messengers
    {{ DiscussionBoard.errors[3231150].message }}
  • Profile picture of the author Dennis Gaskill
    $1500 for a little graphics and HTML work seems high. How many people did you check with? If it were only a few, I'd get some more estimates.

    It sounds like you don't want to do the work yourself. You could do a little at a time if time if it's not time sensitive, and when it's ready, it's ready. That way it won't be a big downer to do.

    If you're concerned you won't get your money back, that is, you won't sell enough units, you could partner with someone instead of paying them. If you're sure you'll earn the money back, and you don't want to do the work yourself, then just pay up.

    I mean WTH? If that's your only expense you're spending $1,500 to make $3,000. You have a problem with that? I'd spend that every time, and do it as often as possible.
    Signature

    Just when you think you've got it all figured out, someone changes the rules.

    {{ DiscussionBoard.errors[3231204].message }}
  • Profile picture of the author Silas Hart
    If I were to do it myself, then I would be self employed and not an entrepreneur. If I calculated that a launch would bring me $3,000, but cost a $1,500 investment, I would either not make the product in the first place and move onto something else or if the product was already made I would just settle with the $1,500 profit.
    {{ DiscussionBoard.errors[3231253].message }}
  • Profile picture of the author tpw
    I generally view graphics as low priority. As such, I would outsource the html and ignore the image.
    Signature
    Bill Platt, Oklahoma USA, PlattPublishing.com
    Publish Coloring Books for Profit (WSOTD 7-30-2015)
    {{ DiscussionBoard.errors[3231371].message }}
    • Profile picture of the author TheCG
      I look at it like this, if I can outsource it all and still make money, I am outsourcing it.

      If I am doing close to 0% of the work, how much "work" can I do?

      I can make as much as I want while I am doing the things I love to do instead of things I don't want to do or can't do well.

      If others are doing the work, my income potential is limitless.
      Signature

      Yes, by the way, I AM in the Witness Protection Program. I could tell you who I am but then I would have to kill you.

      {{ DiscussionBoard.errors[3231387].message }}
  • Profile picture of the author Istvan Horvath
    I am looking at those examples
    a)$1,500 vs. $3,000
    b)$700,000 vs. $1,000,000
    in a different way and from where I stand they are very different things.

    a) it is a 100% ROI (return on investment) in 3 days. Excellent!

    b) it's a 42.8% ROI in 30 days... It's not stellar but look at the annual return of your other investments! (People are, usually, very happy with a 10-12% annaul ROI in their investment funds...!)

    On the other hand, the difference between 1,500 and 3,000 is not that big to even think about it.
    However, the b) example without outsourcing would mean a $166,666/mo payment for your 6 months work...

    It all depends how do you look at it
    Signature

    {{ DiscussionBoard.errors[3231725].message }}

Trending Topics