In today’s competitive business environment, many organizations see IT outsourcing as a real competitive advantage. Outsourcing critical IT services or back-office activities provides increased scalability and bandwidth for growth, along with a predictable monthly budget for the very ‘best in class’ services. And, it allows companies to extend their services and focus on core activities like product development and sales, without excessive spending on technology, capital expenses, or hiring additional employees. The trick is to evaluate if hiring outside specialists is the right decision based on costs and the expected benefits the service provider can generate. Let’s evaluate different pricing models and look at guidelines for how much companies can expect to budget for when working with an IT service provider.
- Flat rate vs. a la carte IT services- The most popular pricing models for IT services are flat-rate billing, a la carte services, tiered pricing, or cost-per-user or device. It’s imperative for companies to price out each model based on projected services required, users and support options needed. Managers should also consider ‘hidden costs’ of certain models and how that might play out. For instance, while the flat rate or all-inclusive option may have a higher price point and offer standardized services, it does provide predictability of monthly expenditures. In many cases, a flat-rate structure comprises of troubleshooting or support services as well, which may be a larger line item in the budget than originally anticipated (i.e., adding branch offices, an acquisition, product development, etc.). The a la carte service option, on the other hand, offers the greatest flexibility, giving customers the ability to build a custom service agreement based on only those products and offerings they’re interested in, but it may also have high costs associated if additional support is required.
- Tiered pricing and cost-per-user or device- Tiered pricing models bundle a series of packages and services together at various levels and price points—bronze, silver, and gold, for instance. That may include network solutions that encompass design, and ongoing management of routers, switches, firewalls, and cloud services, and those services would be billed at a flat monthly rate and include setting up SLAs and services. In this scenario, companies should be careful not to opt for a package that offers services that they don’t use. On the per user or per device side, that might consist of access to an integrated line of business applications (LOB) that are customer facing such as SAP, Oracle eBusiness Suite, or Microsoft Dynamics. While those services may be priced higher per user, such as $120 to $180, if that’s all that’s needed, it may make sense. Keep in mind, if the price per device looks too good to be true, it probably is. Low-cost MSPs, often have higher rates for what they consider ‘ad-on’ services. And, remember that most IT services require support and ongoing assistance and monitoring by specialists to run most efficiently.
- Other value factors to consider- In addition to evaluating pricing structures, it’s also important to think about the strategic cost/benefit of working with proven IT experts. For instance, advisors should provide consultative insight into how to spend IT resources and prioritize new technology over time. Look for a partner that drives improvements across the business with recommendations about how to optimize IT services to improve innovation, productivity, and the customer experience. Other costs to consider may be less tangible but are still critical, such as internet downtime or slow performing applications. Key findings by the Ponemon Institute tells us that the average cost of unplanned downtime for a business is $7,900 each minute. (Ponemon Institute). This is something IT service providers should help plan for. As an example, outfitting a new branch office location with a 4G/LTE wireless router, may save hundreds of dollars per month. Also, that wireless router may also serve as a backup internet connection that will keep users connected even if the primary carrier line go down. It can provide employees access to cloud services and business-critical applications they use most, avoiding missed opportunities with clients and other possible productivity drains.
Budgeting for managed IT services depends on many factors but consider service providers that will work to diligently deliver the best possible service at the best reasonable cost. Not only that, look for a partner that is committed to the company’s successes and can act as a strategic partner. Those that provide advanced, proven solutions that improve productivity and innovation will unearth opportunities and keep businesses moving full steam ahead.