IT by the Numbers (and then some)
Small business owners face a number of challenges, but one of the biggest is the struggle to contain operating costs. What’s more, one of the most difficult expenses to manage is often the IT budget.
We know that infrastructure is essential to business operations, so that becomes priority #1 and balancing all the other expenditures remains a continuous challenge. We can’t forget that staffing is also a big part of IT operating expense, so the question becomes: Is it more cost-effective to hire or outsource? And how do you assess a Managed Services Provider’s pricing against an in-house staff? Here are a few points to consider when comparing In-House vs. Managed Services for IT in your business.
Calculating the True Cost of IT
For most small businesses, IT costs make up about 6.9% of revenue ($13,100/employee on average). When you consider that the national average salary for an IT manager is $70,000 or more per year, you should be prepared to support more than six employees to warrant the additional salary. That part’s pretty straightforward.
BUT, if you’re evaluating costs based only on IT salary, your totals are misleading and do not represent the true cost of IT. Other costs that need to be accounted for as well include things like infrastructure such as hardware, software, and even cloud services. What you’re diving into now is understanding the total cost of ownership.
[Hidden] Total Cost of Ownership (TCO)
Upgrading or expanding your IT infrastructure comes with some hidden costs that you might never think about, but that will certainly add up in your overall budget. Think about the time spent identifying, selecting, ordering, receiving, inventorying, and purchasing hardware or software.
Here are some others that often fall through the budget cracks:
- Equipment upgrade, maintenance, enhancement, and refurbishing
- Setup and Deployment costs:
- Configuring space
- Setting up
- Various outside services
- Operating costs: Expenses for human operator labor, or energy costs and fuel costs.
- Change management:
- New user orientation
- User training
- Managing workflow or process change
- Infrastructure support costs: IT support costs due for a new project and/or acquisition.
- Security costs:
- Electronic security
- Security software
- Offsite data backup
- Disaster recovery services
- Disposal /Decommission costs
A Brief Comparison: In-House vs. Managed Services for IT
No matter how you arrive at your IT spending formula when assessing in-house costs vs. Managed Services pricing, be sure to consider these other factors that can have an impact on your business:
- Access to only one skillset, or limited expertise level and knowledge base
- Bandwidth is only as large as one person can handle
- Total reliance on one person can leave a company vulnerable if that person leaves for another job, becomes ill or takes vacation
- Company resource time spent dealing with turnover, recruiting, and training
- Access to an entire team with a much more diverse skill set, levels of expertise and shared knowledge base
- Larger bandwidth with full staff able to work on multiple issues simultaneously
- Support to business is unaffected by vacation, sickness or people leaving current jobs
- Bypass the high cost and time of recruiting, hiring, managing, and training
Even when we were only looking at the numbers, it was pretty clear that a third-party IT resource makes sense for many businesses – but with these additional considerations, think about the reduced risk and added value you get from having an army of IT pros at your back. Do the benefits of having someone on payroll outweigh the costs?
We understand that sometimes, having someone on staff is beneficial. They can be readily available with more hands-on involvement in your daily operations, as well as contribute to the overall company culture than what you get from an MSP. However, relying on an in-house employee essentially boils down to putting all your IT eggs in one basket. Ultimately, an MSP will offer a much more extensive level of support for a fraction of the cost.