Small startups face a formidable uphill climb to profitability, and cutting corners on costs where possible is crucial to their survival in the fledgling first years. Labor consumes the lion’s share of a small business budget, so being creative when staffing a startup can go a long way toward profitability. To save on labor costs, many small startups are turning to freelance help — contract employees paid by the task or project. Leaning heavily on freelancers to stand in the stead of full time employees also means less government paperwork for the business owner, which equates to more productive time spent concentrating on other facets of the business. But the “why” of utilizing freelancers is simple: the bottom line is paramount.

“That’s how we’ve kept our company lean and mean,” clothing entrepreneur Xan Hood told CNN. “I’m watching every dollar coming in or out of the company.”
Hood’s Charlotte, N.C.-based clothing start-up, Buffalo Jackson, uses freelance help for accounting, art work, web design, photography and customer service. Even with annual revenues approaching $1 million, having seven freelancers on call, rather than staffing with full-time or part-time employees, has been a game changer for Buffalo Jackson, which Hood said is still in “survival mode.” How much of a game-changer? Hood told CNN that using freelancers saved him an estimated $270,000 in labor costs last year. He does not have the 7.7% overhead of federal payroll taxes, and does not incur North Carolina’s unemployment insurance costs, which can run as high as 6.8% of employee salaries.
Temp worker ranks are booming
Many businessmen turn to staffing agencies for temporary help, but Internet-based sources are booming as well. is one of the more popular conduits for freelance help, having had 1.6 million jobs posted to its job boards since the middle of 2011. Freelancers use Elance to bid on jobs posted to the site. Online freelance help can also be had at Freelancer, oDesk, Guru, vWorker and Fiverr. Freelance web sites have no shortage of writers, web designers, IT experts, artists and talented consultants in other business areas. The number of project freelancers, labeled “contingent workers” by the General Accounting Office, has boomed since the economic downturn of the mid-2000s. And since 1990, the number of “temp” workers hired through staffing agencies has more than doubled, according to the U.S. Department of Labor.
From the worker’s point of view, a freelancer’s paycheck is not always the best, but work is available and often plentiful, and it enables a flexible lifestyle.
“I enjoy having time with my family and a flexible schedule,” said Elance freelancer Melissa Simpson, a Colorado Springs, Colo., mother of five who works at home in customer service for Buffalo Jackson. “It’s been a lifesaver.”
Jose Pagliery. “Business saves $270K. The trick? No employees” CNN Money. 2/26/13