Agency vs. Freelancer vs. Direct hire: When is it right to hire each?

Agency vs. Freelancer vs. Direct hire
Source: Stencil

Hiring is one of the hardest challenges businesses face while trying to scale. You must first prioritize the right positions, then get the word out about the open role. Then it’s time to select the strongest candidates to interview, conduct those interviews, and finally hire the right person. Then you hope those selected team members stick around to help your company grow. 

The hiring process can be grueling, not to mention stressful. And it doesn’t end there. Before you post about your open position, you must choose what type of resource to hire. Do you need a full-time employee or can you outsource the task to a freelancer? Should you build an internal team or work with a specialized agency?

In this article, we’re going to try to simplify this part of the hiring process for eCommerce companies. We’ll investigate how to know when to hire an agency vs. freelancer vs. in-house.

When to hire a freelancer vs. agency vs. direct hire

Freelancers

In my experience, determining what type of resources to hire comes down to the size of the company and the size of the team your company is trying to work with. Freelancers, agencies, and full-time employees are all important for different hiring stages and needs.

Think of scaling a company like building a house. Freelancers are like handymen. For the most part, they offer a broad — rather than deep — set of skills that enable them to handle a wide range of one-off projects. Within a small scope, freelancers (and handymen) are hard to beat. Their speed and flexibility make them convenient and affordable for one-off projects. But they can sometimes be a bit unreliable for the long-term because they juggle a lot of jobs.

Agencies 

To continue our house analogy, agencies are like general contractors. They combine multiple skill sets and bring those skills to bear when it makes sense. Resources are often available on an as-needed basis, making it easier to get the specialty you need, right as you need it. 

From a management perspective, it’s the agency’s job to hire the right talent, work in the right environment to bring out the best from their team, and bring that talent to bear on behalf of the client. Agencies offer enormous value in bringing different skill sets at a breadth and depth you won’t find simply hiring a group of freelancers.

Like general contractors, agencies are also valuable for the individual talent and knowledge they bring to each job. Every person brings their individual and collective knowledge. For example, if I hire a general contractor, and that contractor brings in a roofer, then I want that roofer to have learned and benefited from all the other projects the agency has done—not just the learnings from that individual. 

You will pay more for an agency than for a freelancer. A tiny startup might work with a freelancer because they’re going to prioritize cost and convenience over responsiveness and skills. 

Direct hires

The third alternative is to build a team in-house through direct hires. This can be the best — or worst — of both worlds, depending on how it’s done. In our house analogy, this means hiring a full-time team to work on your house. 

Often the types of skills a company would hire a freelancer or agency to complete don’t make the best direct hires for eCommerce companies. The skills are usually necessary but not core to the company’s mission. 

A DTC clothing company, for example, has bigger priorities than managing their website. It’s a necessary skill but isn’t important enough to deserve its own department. When companies try to save money by hiring internally for these roles, they often end up creating dead-end departments with high turnover. 

When to hire a freelancer vs. agency, vs. in-house employee

Companies can hire any of these positions at any time. But when are these decisions (and roles) most advantageous to scaling companies?

Well, of course it depends. But as a general rule, eCommerce companies earning less than $5M should work primarily with freelancers for their convenience and cost savings. 

From $5-10M companies should work with hourly agencies who can be leveraged on a changing basis. This maintains the cost savings to some degree, while also leveling up the skills available to your team.

And finally, once your organization crosses $10M per year, you should begin considering fixed-fee agencies or full-time hires. By then, you’re looking for more consistent talent to collaborate and work with your team. 

Around the $70M dollar mark, companies must decide if they’re ready to become experts in tech. That means choosing between hiring their necessary skills in-house or continuing to use agencies. Hiring in-house means creating a new department in a technical specialty. Working with an agency means outsourcing skills that aren’t important for you to master internally. 

But even then, it might be a mixed model of agency and in-house teams working together. The benefit here is that the agency can usually scale up and down as needs fluctuate. 

Why would you hire agency over direct hire (in-house)

Once companies reach a certain size, they might think it’s more cost-effective to hire an in-house team. And that makes sense — but only if the company wants that skill to be one of its core competencies. If a shoe brand wants to think of themselves not only as a shoe company but also a tech company, then once they reach the scale of 5-7 agency employees, then it’s time to potentially think about hiring in house.

This is a question of scale and commitment to a particular capability. The reason you pay the agency a premium is because the agency is investing time and effort to find, train, and retain the right talent. Your organization can double down on strengths while outsourcing for the skills not within your wheelhouse. 

Brands should spend time relatively early deciding whether they want to become partly a technology company or not. Are you dedicated as a company to building and enhancing that expertise? If the answer to that is no, or not clear, then you’re a good fit for working with an agency in some capacity. 

Closing thought

So, when should you hire an agency vs. freelancer vs. in-house? 

As I’ve mentioned, I don’t believe there’s a one-size fits all answer. A company should know what they want their core competencies to be and then align their hires with how they operate in the space.

But I’ll leave you with this. The most common mix-matches I see are when brands truly think of themselves as brands — I.e. they don’t see themselves as a tech company — but they build an in-house team anyway to save a couple bucks. The problem arises as these teams become dead-end departments. Turnover becomes a major problem. In other words…

Source freelancers when you have a one-off project.

Work with agencies when you need deep, ongoing technical expertise.

Hire in-house when you decide to invest in a department and become experts in that sub-set of skills.

I hope you found this helpful! You may also enjoy our recent article about how to build an effective eCommerce user experience.