Managed Service Provider Pricing vs. the Cost of Hiring In-House IT

Like companies everywhere, Connecticut small businesses are struggling to contain operating costs, and computing infrastructure can be one of the most difficult expenses to manage. The enterprise infrastructure is essential to business operations, but it’s usually a cost center, so balancing outlay against returns is a continuous challenge. Staffing is a big part of IT operating expenses, so the question becomes: Is it more cost-effective to hire or to outsource? How do you assess managed service provider pricing against in-house staffing costs?

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How Much to Spend on IT for Your Company

In most small businesses, IT costs make up about 6.9 percent of revenue. That comes out to be about $13,100 per employee on average. You can use the average cost per employee as a metric to assess hiring more staff and bringing on more resources as opposed to hiring a managed service provider. When you consider the average salary for an IT manager is more than $70,000 per year, then any new IT hire needs to be prepared to support more than six employees to warrant the additional salary.

Of course, just using IT salary as a metric is misleading, because there are costs for infrastructure as well, such as hardware, software, and cloud services. Experts also note that both the percentage of revenue and the cost per employee for IT support are dropping, most likely because of savings from cloud computing. In fact, 56 percent of organizations are increasing cloud spending, while only 10 percent are investing in more data center infrastructure.


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The Bigger Budget Picture

No matter how you arrive at your IT spending formula, when assessing in-house costs versus managed service provider pricing, be sure to consider other factors that can have an impact on your operation. For example, Cisco estimates that businesses lose 1 percent of revenue annually from network downtime, and an Avaya study estimates that network downtime can cost anywhere from $140,000 to $540,000 per hour. If hiring one or even two IT professionals can ensure that you will have one less hour of IT failure, then their salaries seem to be justified, but there are still no guarantees that more staff means less downtime.

Threats from malware are presenting a greater threat to small businesses. Forty-three percent of malware attacks target small to medium-sized businesses (SMBs), and 55 percent of small businesses reported a cyberattack from May 2015 to May 2016. Research also shows that 79 percent of IT professionals say they lack the resources necessary to address outside threats, and they can’t provide consistent protection across the network. This is another issue that additional staffing isn’t likely to solve.

Investing in more IT infrastructure and personnel may not be the best strategy to minimize losses from network failures. There are services that are more cost-effective to outsource rather than try to manage in-house.


IT System Management: In-House vs. Managed Service Provider

Here are just a few of the most common IT functions and key points to consider when deciding whether it makes sense to handle them with in-house IT staff or by outsourcing to a managed service provider:


  • Network security – As we have noted, more staff doesn’t translate into more security. How far do you need to go to protect your network? You need to have anti-malware solutions in place as network monitoring to watch for intruders. However, hiring in-house security specialists is expensive, and they can’t spend all their time monitoring your network. Outsourcing data systems security is a good investment, because third-party specialists have the expertise and dedicated resources to filter data traffic and detect cyberattacks.
  • Systems backup – Data backup and system redundancy are your best defenses against systems failure. If your network should fail, how long will it take to get back online? If you have a malware attack, can you quickly roll back to a clean systems configuration? Data backup is a necessary IT function but not necessarily an effective use of IT staff time and resources. If you are going to maintain your own systems backup, you need to allocate man-hours for daily backups as well as disk space, hardware, and software. If you use a remote backup service, you can be assured of having clean backups when you need them, and your IT team is free for more important duties.
  • Printer management – Did you know that 23 percent of all help-desk calls are printer-related? If you are paying an IT manager $70,000 per year, then that means $16,100 of his or her salary is going to deal with jammed printers and toner cartridges. Office printing is one area where it is easy to cut costs by outsourcing service and supplies. Your IT team has better things to do.  
  • Cloud services – More SMBs are outsourcing enterprise applications and data storage to the cloud. It saves on hardware costs and software costs and makes it easier and faster to add new services and new users. Rather than managing cloud services themselves, smart SMBs are partnering with managed service providers for cloud support, including systems configuration, monitoring, and license management. It’s easier and more cost-effective to work with one service provider rather than multiple cloud and software vendors.


In many ways, the biggest argument for working with a managed service provider is to give you a single resource for your IT support. A managed service provider can provide expert, dedicated services where you need them, backed by service-level agreements to ensure performance. Working with a seasoned service provider will not only save you money, but you will have a trusted partner you can rely on to manage your IT systems, freeing your IT team for more strategic tasks.

When you take a hard look at the real cost of IT operations, it becomes clear that it is more cost-effective to outsource many IT tasks to a reliable service provider. The line-item expenses may look to be similar to managed service provider pricing, but when you hire a managed service provider, you get a team of experts for a fraction of the cost to hire them.


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About The Author

President of NSI, Tom has been helping small and medium businesses succeed in Connecticut for over 25 years.