Managed IT Services Costs and Pricing
How much should I be spending on IT to support my Business? As a small or medium sized business, am I investing enough in IT to grow my business? Am I spending too much on my current IT Company? Is a Managed Service Provider (MSP) right for my business?
Business owners are faced with balancing questions like these among a hundred other priorities every day. Let’s explore how owners or business leaders should think about their IT spend and the value of engaging an MSP.
What type of IT Services is right for my business?
Before we discuss costs and pricing, perhaps we should understand the options available to small and medium sized businesses. Historically, there has been a traditional approach to IT Services where an IT company focused on the ability to react to IT issues. In this model, most IT companies focused on addressing IT issues as they occurred. Over the last decade, managed IT services, referred to as managed services, have become much more prominent with the more effective MSPs providing proactive monitoring and management of the IT infrastructure incorporating help desk support, on site support, and other specialties.
Let’s explore what Managed IT Services are in more detail.
What are Managed IT Services?
Managed IT services are a collection of IT tasks that have been offloaded to an external provider to either augment internal resources that perform IT services or in place of IT services performed by internal teams.
An effective MSP oversees the overall business technology infrastructure for its clients. IT experts monitor and respond to avoid or respond to technical issues as they arise and implement measures to prevent security problems.
Some examples of managed IT services include:
- Monitoring and management of servers and desktops/laptops
- Cloud services
- Server maintenance
- Data backup
- Disaster recovery
- Network and security monitoring
- Systems administration
- Infrastructure management
- Help desk support
- Deskside support
- Mobile Device Management
While some MSPs have standard packaged offerings that they bring to the market, the most effective MSPs bring solutions that are uniquely tailored to their client’s business goals and requirements. The exact services that a managed IT service will provide are defined with each client. Procedures for technical support, help desk services, unexpected downtime, and emergency recovery are typically included.
How does Managed IT differ from Traditional IT Services?
Traditional IT Services
Historically, traditional IT support has been a mostly reactive service. In other words, a tech problem usually must occur before traditional IT services are needed. Sometimes known as break/fix services, if something breaks, the user contacts an IT company to fix the issue.
But users in need of tech support are at the mercy of a traditional IT company’s business hours and availability to fix problems.
Some companies have their own in-house IT teams to perform traditional IT services, though others may outsource. These teams can be perfectly adequate for smaller companies without much complex technology to manage.
Traditional IT services that are outsourced may be purchased as a block of hours or at a subscription rate. Internal IT support comes with training and salary costs that multiply with each team member.
Managed IT Services
On the other hand, managed IT is a proactive service. Providers work to prevent problems before they occur rather than waiting until something breaks. Managed IT service providers constantly monitor the technological needs of their clients and can customize their service packages to suit a particular business.
Effective managed IT service providers usually have systems and processes that ensure minimal downtime and significantly reduced response times should an issue arise. Managed IT services also provide clients with regular reporting to identify vulnerabilities and pain points.
In terms of pricing, managed IT services are almost always offered at a standard monthly rate or subscription model. Prices remain constant and predictable so clients can more easily budget their expenses.
Many small and medium sized businesses rely on a very small IT support staff, in some cases an IT department of 1 to support their business or “they have a friend”; an external person that supports their needs from time to time. Over time, as the business grows and the critical systems become more complex, the small IT department or friend no longer has the capacity or knowledge to support the IT infrastructure.
The good news is that businesses don’t necessarily have to choose between their internal IT staff and working with an MSP. Most effective MSPs have service offerings that blend in with the existing IT support staff. Augmenting their capability, bandwidth, and overall expertise turning a “one-man” IT department into a fully staffed and capable IT organization supporting the infrastructure and service delivery.
How much should I spend on managed IT services?
The real answer is “it depends”. There are market studies that suggest best practices by industry tied to revenue. Other studies link IT spend to headcount. In reality, IT spend needs to be based upon the health of your existing infrastructure, the nature of your industry, the criticality of IT to your business, and the organization’s overall risk tolerance.
What factors affect IT support pricing
Health of Existing Infrastructure
The health of your existing infrastructure can drastically impact your initial investments. If your organization has ignored investment in IT, you’ll find your infrastructure may have atrophied over time and become either out of date or obsolete. Bringing your IT infrastructure up to a reasonable level of capability may represent a large investment. Thoughtful planning and prioritization will allow you to update the infrastructure in alignment with business goals.
Type of Industry Impacts on IT Costs
All organizations, regardless of industry, should be concerned with the fundamental approaches to ensure your systems and data are reliably available, secured from cyber-attack, and enable employee productivity. Additionally, not all industries are created equal when it comes to IT requirements. Many industries are subject to governmental or regulatory compliance. Whether its compliance with HIPPA, SOC2, PCI, or FINRA, driven by fiduciary responsibilities, or cyber security insurance requirements, businesses must ensure they comply with the appropriate guidelines. There are operational IT and IT support expenses necessary to meet these requirements. Additionally, there is a growing administrative expense associated with verifying compliance. Most business owners can’t retain dedicated staff to managing IT compliance and are faced with doing it themselves. Thought leading managed services providers offer compliance services to their customers.
Criticality of IT to Business Operations
Another cost driver is how critical IT is to your business operations. In today’s environment, the vast majority of businesses, large or small, rely on technology to support some aspect of their operations. Some businesses simply can’t function without IT services while other small businesses rely only on limited technology. Regardless of size or type, there is some level of IT services cost. Many businesses leverage technology to innovate their products and services, while others have to manage large amounts of data. How much data, how many employees, and how much innovation can all drive the services costs in your business.
Finally, risk tolerance is a big driver of services cost. Companies must understand what systems and processes are critical to business operations. They need to understand their tolerance for downtime due to system issues and the impact on their customers and employee productivity. They need to consider how much data is generated or processed each day and the tolerance for losing data if a system fails. Understanding the various aspects of the business performance and the impact IT infrastructure has on that performance can help owners and business leaders determine how to balance services cost with risk and business impact.
This balance will drive decisions on topics that affect services costs such as…
- How redundant do my systems need to be?
- Can I afford for my internet provider to have an outage, or should I have redundancy?
- How often is data backed up, how long should I retain backup files?
- How much should I spend on IT security? What would be the impact of a ransomware attack?
- What does my cybersecurity insurance carrier require?
- If there was a power outage, cyberattack, or hardware failure, how long can I operate my business without access to my IT infrastructure (email, server, cloud application, video conference, client data, etc.)?
- Are there service level agreements required?
Considering the health of existing infrastructure, industry requirements, the criticality of technology to the business operations, and the risk tolerance of the organization, best in MSP should tailor a solution that aligns costs with business goals and outcomes.
Different levels of managed IT services
As we’ve outlined above, best in class MSPs tailor their offerings to configure the optimal solution for their clients. Rather than providing one size fits all or tiered package offerings, they take their individual offerings to bundle together the best solution for a client. If internal IT staff is part of the solution, the client may choose to do their own deskside support. Does the business need 24×7 support or just remote support during business hours? What are the best security tools required for a business whose employees are entirely virtual vs. a customer who has a large on-premises network with onsite employees? Would clients prefer planned site visits and onsite support or just remote support?
Aligning the client’s business requirements and preferences with the various alternative service delivery models, will pave the way for an optimized balance between business requirements and cost.
Managed IT services pricing
In today’s managed IT services market, there are three ways the MSP market approaches managed IT pricing. The first is monthly recurring fees. This is the base amount an MSP will charge to provide managed IT services based upon the services you subscribed to. This amount should not change month to month for the duration of your contract unless the managed IT services that have been purchased change (i.e. the number of email licenses you require or the number of assets being supported changes). The second type of fees would be project-based fees. Project based fees are typically driven by project activities that don’t re-occur month to month. An example of a project would be an annual penetration test or a server installation. Lastly, some MSPs charge a per ticket or per incident charge for support that is over and above the monthly fee. Although the per ticket fee may reduce the monthly fees, it can drive unpredictable spend and conflict between the managed service provider and the client. Best in class delivery will provide for unlimited remote support, help desk support, and desk side support in the monthly fee.
Best in class managed services providers will bundle the right offerings to address the balance between a client’s business requirements and budget. This will lead to a predictable monthly spend. The MSP should understand the health of the customer’s IT infrastructure to ensure budgets and plans are established so that there are no budgetary surprises as the infrastructure needs to be updated. Lastly, the managed services provider should provide thought leadership to the customer on the evolution of technology and the client’s business environment so that innovation in technology is applied for the optimal impact on the business performance.
Managed IT services in Cincinnati and Northern Kentucky vs. other markets
In today’s managed IT Services market, there are three ways the MSP market approaches managed IT pricing. The first, would be monthly recurring fees. This is the base amount an MSP will charge to provide managed IT services based upon the services you subscribed to. This amount should not change month to month for the duration of your contract unless the managed IT services that have been purchased change month to month (i.e. the number of email licenses you require or the number of assets being supported changes). The second type of fees would be project-based fees. Project based fees are typically driven by project activities that don’t re-occur month to month. An example of a project would be an annual penetration test, or server installation. Lastly, some MSPs charge a per ticket or per incident charge for support that is over and above the monthly fee. Although the per ticket fee may reduce the monthly fees, it can drive unpredictable spend and conflict between the managed service provider and the client. Best in class delivery will provide for unlimited remote support, help desk support, and desk side support in the monthly fee.
Best in class managed services providers will bundle the right offerings to address the balance between a client’s business requirements and budget. This will lead to a predictable monthly spend. The MSP should understand the health of the customer’s IT infrastructure to ensure budgets and plans are established so that there are no budgetary surprises as the infrastructure needs to be updated. Lastly, the managed services provider should work the customer to the evolution of technology and the client’s business environment so that innovation in technology is applied for the optimal impact on the business performance.
What are the benefits and uses of managed IT services?
The benefits of managed services include proactive problem solving, greater expertise, better response times, reduced costs, and more time to focus on business objectives.
What are the major factors that impact the cost of being supported by an managed IT service provider?
The health of your existing IT infrastructure, how critical your systems are to business operations, your industry, and your risk tolerance all impact the cost of supporting your IT. Companies in non-regulated industries that operate in standard business hours with non-complex IT requirements, can operate with greatly reduced support costs. As extended operating hours (24×7) in regulated industries will have more stringent requirements that generally drive up the cost of support.