MSP Teams in the SMB
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@Carnival-Boy said in MSP Teams in the SMB:
I don't know what the business models of MSPs are, I'd love to hear from some. But let me guess at this: I employ one full-time in-house IT guy at $50k pa. Alternatively, let's say an MSP employs 10 IT guys at $50k pa. The owner takes a 20% cut on top of that. So the MSP is costing $600k for 10 support staff. To cover that, the MSP has 12 clients paying $50k each. So each client will get the equivalent of 83% of a full-time IT guy.
I'm guessing @Carnival-Boy is talking about the 20% over the cost of the tech as the being in business expenses.
But as Scott has pointed out it's probably a lot higher than that.
Let's look at a break down.
Let's assume your tech gets paid $70K/yr That's $34/hr (rounded) This does not include FICA matching, 401K, health insurance, business insurance, etc. The typical numbers I hear for these fees is 50% the annual wage of the employee. In this case, that would $35K.
So now this employee costs you $105K/yr (minimum, because they are an hourly employee), that makes the hourly rate $51/hr (rounded).
Now, let's assume you can only bill for 70% of his time, the rest of their time will be spent training, transitioning, etc. So now the hourly rate (2080 hr * 70% = 1456 hrs) is $73/hr (rounded).Now you have business expenses - building rent/power/water/sewer/internet/phone/sales people/owner of the company salary/project managers/internal IT, etc These things could easily add another $80/hr
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
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I can't recall who said it - but going with an MSP isn't generally about saving money - it's about having a better situation. You go from a small/one man IT shop to a team, some of which are specialist, that can support your setup extremely efficiently.
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@Dashrender said in MSP Teams in the SMB:
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
Right. And when I was on Wall St., I had some info on these numbers. And things like the support cost and the real estate for a cubicle in central New Jersey cost MORE than the salary of people making $200,000 a year. Think about that, that means that in rural NJ (not a city, but a dense office park in the country) that a cubicle plus its support costs were over $200,000 / year just to provide power, space, heating, cooling, security, desks, walls, computer, Internet and so forth! The salary costs, management costs, training costs and whatever of the employee was on top of that. So for a high end admin, the actual cost to the company was around a half million a year.
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And those costs were for offshored, low cost workers servicing London because they were so much cheaper than the same resources in London! Imagine what the London people cost!
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It also meant that a secretary making $50K take home was costing the company $350K / year.
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@Carnival-Boy said in MSP Teams in the SMB:
The other issue is that other clients may take more than 83% of an expert, they might take 200% because they're idiots and need lots of support. Because all clients are sharing the same resources, and are paying a fixed fee, there is a free-rider problem. It's the same problem at an all-you-can-eat buffet.
A MSP worth it's salt won't sign more than a one year contract generally, at least not for the first few years. And generally, they probably shouldn't be doing more than month to month. This helps protect both sides. If the MSP underestimated how much time was going to be required by the client, at least they only get burned one month before they visit with the customer about a requirement to change pricing because the job is bigger/different than expected.
The MSPs around here - they really push for a all or nothing type contract/control. i.e. the MSP rolls in all of their own hardware, internet connections, etc. Then the customer treats the MSP as internal IT.
The ITSP model as mentioned is more hourly based, but I know some that have set prices based on an expected number of hours needed per month, and they adjust that month to month as needed.
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@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
Right. And when I was on Wall St., I had some info on these numbers. And things like the support cost and the real estate for a cubicle in central New Jersey cost MORE than the salary of people making $200,000 a year. Think about that, that means that in rural NJ (not a city, but a dense office park in the country) that a cubicle plus its support costs were over $200,000 / year just to provide power, space, heating, cooling, security, desks, walls, computer, Internet and so forth! The salary costs, management costs, training costs and whatever of the employee was on top of that. So for a high end admin, the actual cost to the company was around a half million a year.
I just want to say OMG - what makes it worth having that business be in NJ and not forcing the employees to move to someplace significantly less expensive? Hell, I'm guessing Chicago or Minneapolis would be significantly less, at least in some of the burbs. You're talking about remote support - why keep the company in NJ?
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@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
Right. And when I was on Wall St., I had some info on these numbers. And things like the support cost and the real estate for a cubicle in central New Jersey cost MORE than the salary of people making $200,000 a year. Think about that, that means that in rural NJ (not a city, but a dense office park in the country) that a cubicle plus its support costs were over $200,000 / year just to provide power, space, heating, cooling, security, desks, walls, computer, Internet and so forth! The salary costs, management costs, training costs and whatever of the employee was on top of that. So for a high end admin, the actual cost to the company was around a half million a year.
I just want to say OMG - what makes it worth having that business be in NJ and not forcing the employees to move to someplace significantly less expensive? Hell, I'm guessing Chicago or Minneapolis would be significantly less, at least in some of the burbs. You're talking about remote support - why keep the company in NJ?
If you recall, they did. That's why 50,000 people were relocated to Texas. They claim that cost wasn't the factor but being in the fallout and hurricane zone with NYC was the bigger concern. But cost was certainly a factor.
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The company was originally in NJ because it shared space with emergency trading systems (end user, not servers) because it was within the "maximum fiber trading distance" from NYC which has an outer limit at Scranton, PA. But once all trading support was removed from the facility, it was all engineering and relocated.
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@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
Right. And when I was on Wall St., I had some info on these numbers. And things like the support cost and the real estate for a cubicle in central New Jersey cost MORE than the salary of people making $200,000 a year. Think about that, that means that in rural NJ (not a city, but a dense office park in the country) that a cubicle plus its support costs were over $200,000 / year just to provide power, space, heating, cooling, security, desks, walls, computer, Internet and so forth! The salary costs, management costs, training costs and whatever of the employee was on top of that. So for a high end admin, the actual cost to the company was around a half million a year.
I just want to say OMG - what makes it worth having that business be in NJ and not forcing the employees to move to someplace significantly less expensive? Hell, I'm guessing Chicago or Minneapolis would be significantly less, at least in some of the burbs. You're talking about remote support - why keep the company in NJ?
If you recall, they did. That's why 50,000 people were relocated to Texas. They claim that cost wasn't the factor but being in the fallout and hurricane zone with NYC was the bigger concern. But cost was certainly a factor.
So here's my next question - did they keep charging the London company the same and the company is suddenly significantly more profitable? Or did they lower the price to their customer?
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@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
Right. And when I was on Wall St., I had some info on these numbers. And things like the support cost and the real estate for a cubicle in central New Jersey cost MORE than the salary of people making $200,000 a year. Think about that, that means that in rural NJ (not a city, but a dense office park in the country) that a cubicle plus its support costs were over $200,000 / year just to provide power, space, heating, cooling, security, desks, walls, computer, Internet and so forth! The salary costs, management costs, training costs and whatever of the employee was on top of that. So for a high end admin, the actual cost to the company was around a half million a year.
I just want to say OMG - what makes it worth having that business be in NJ and not forcing the employees to move to someplace significantly less expensive? Hell, I'm guessing Chicago or Minneapolis would be significantly less, at least in some of the burbs. You're talking about remote support - why keep the company in NJ?
If you recall, they did. That's why 50,000 people were relocated to Texas. They claim that cost wasn't the factor but being in the fallout and hurricane zone with NYC was the bigger concern. But cost was certainly a factor.
So here's my next question - did they keep charging the London company the same and the company is suddenly significantly more profitable? Or did they lower the price to their customer?
All internal. It's offshoring, not outsourcing.
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@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
Right. And when I was on Wall St., I had some info on these numbers. And things like the support cost and the real estate for a cubicle in central New Jersey cost MORE than the salary of people making $200,000 a year. Think about that, that means that in rural NJ (not a city, but a dense office park in the country) that a cubicle plus its support costs were over $200,000 / year just to provide power, space, heating, cooling, security, desks, walls, computer, Internet and so forth! The salary costs, management costs, training costs and whatever of the employee was on top of that. So for a high end admin, the actual cost to the company was around a half million a year.
I just want to say OMG - what makes it worth having that business be in NJ and not forcing the employees to move to someplace significantly less expensive? Hell, I'm guessing Chicago or Minneapolis would be significantly less, at least in some of the burbs. You're talking about remote support - why keep the company in NJ?
If you recall, they did. That's why 50,000 people were relocated to Texas. They claim that cost wasn't the factor but being in the fallout and hurricane zone with NYC was the bigger concern. But cost was certainly a factor.
So here's my next question - did they keep charging the London company the same and the company is suddenly significantly more profitable? Or did they lower the price to their customer?
All internal. It's offshoring, not outsourcing.
I'm not sure what question you were answering, but It wasn't mine.
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@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
Right. And when I was on Wall St., I had some info on these numbers. And things like the support cost and the real estate for a cubicle in central New Jersey cost MORE than the salary of people making $200,000 a year. Think about that, that means that in rural NJ (not a city, but a dense office park in the country) that a cubicle plus its support costs were over $200,000 / year just to provide power, space, heating, cooling, security, desks, walls, computer, Internet and so forth! The salary costs, management costs, training costs and whatever of the employee was on top of that. So for a high end admin, the actual cost to the company was around a half million a year.
I just want to say OMG - what makes it worth having that business be in NJ and not forcing the employees to move to someplace significantly less expensive? Hell, I'm guessing Chicago or Minneapolis would be significantly less, at least in some of the burbs. You're talking about remote support - why keep the company in NJ?
If you recall, they did. That's why 50,000 people were relocated to Texas. They claim that cost wasn't the factor but being in the fallout and hurricane zone with NYC was the bigger concern. But cost was certainly a factor.
So here's my next question - did they keep charging the London company the same and the company is suddenly significantly more profitable? Or did they lower the price to their customer?
All internal. It's offshoring, not outsourcing.
I'm not sure what question you were answering, but It wasn't mine.
You asked about the London company, but we were all the London company.
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@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
Right. And when I was on Wall St., I had some info on these numbers. And things like the support cost and the real estate for a cubicle in central New Jersey cost MORE than the salary of people making $200,000 a year. Think about that, that means that in rural NJ (not a city, but a dense office park in the country) that a cubicle plus its support costs were over $200,000 / year just to provide power, space, heating, cooling, security, desks, walls, computer, Internet and so forth! The salary costs, management costs, training costs and whatever of the employee was on top of that. So for a high end admin, the actual cost to the company was around a half million a year.
I just want to say OMG - what makes it worth having that business be in NJ and not forcing the employees to move to someplace significantly less expensive? Hell, I'm guessing Chicago or Minneapolis would be significantly less, at least in some of the burbs. You're talking about remote support - why keep the company in NJ?
If you recall, they did. That's why 50,000 people were relocated to Texas. They claim that cost wasn't the factor but being in the fallout and hurricane zone with NYC was the bigger concern. But cost was certainly a factor.
So here's my next question - did they keep charging the London company the same and the company is suddenly significantly more profitable? Or did they lower the price to their customer?
All internal. It's offshoring, not outsourcing.
I'm not sure what question you were answering, but It wasn't mine.
You asked about the London company, but we were all the London company.
OHHH, got it. So it was just a cost savings for the company.
How many employees didn't move to Texas? Percentage wise?
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@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
@scottalanmiller said in MSP Teams in the SMB:
@Dashrender said in MSP Teams in the SMB:
So you have the employee cost $73/hr + business expenses $80/hr, means you have to charge $150/hr just to break even.
Right. And when I was on Wall St., I had some info on these numbers. And things like the support cost and the real estate for a cubicle in central New Jersey cost MORE than the salary of people making $200,000 a year. Think about that, that means that in rural NJ (not a city, but a dense office park in the country) that a cubicle plus its support costs were over $200,000 / year just to provide power, space, heating, cooling, security, desks, walls, computer, Internet and so forth! The salary costs, management costs, training costs and whatever of the employee was on top of that. So for a high end admin, the actual cost to the company was around a half million a year.
I just want to say OMG - what makes it worth having that business be in NJ and not forcing the employees to move to someplace significantly less expensive? Hell, I'm guessing Chicago or Minneapolis would be significantly less, at least in some of the burbs. You're talking about remote support - why keep the company in NJ?
If you recall, they did. That's why 50,000 people were relocated to Texas. They claim that cost wasn't the factor but being in the fallout and hurricane zone with NYC was the bigger concern. But cost was certainly a factor.
So here's my next question - did they keep charging the London company the same and the company is suddenly significantly more profitable? Or did they lower the price to their customer?
All internal. It's offshoring, not outsourcing.
I'm not sure what question you were answering, but It wasn't mine.
You asked about the London company, but we were all the London company.
OHHH, got it. So it was just a cost savings for the company.
How many employees didn't move to Texas? Percentage wise?
Not many, the site was basically all engineering. Pretty much anyone that didn't move went home rather than stayed. I think that they sold the facility (or ended their lease.)
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My figures were purely an example. I'm interested to hear real world examples. When I worked for an IT company (many years ago), I was earning the company around $1,000 per day, but getting paid around $100. Even accounting for business expenses and taxes, I'm pretty certain my bosses were making a very decent profit. Whether that was 20% or 5% or 50%, I have no idea. By employing internal IT staff, I'm cutting out the middle-man, and handling the expenses and management myself. Is that a good idea? I dunno, I've never ran the figures, but I'm not sure you have either so who can say MSPs are always better?
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@Carnival-Boy said in MSP Teams in the SMB:
I dunno, I've never ran the figures, but I'm not sure you have either so who can say MSPs are always better?
Of course we have, I'm surprised anyone hasn't. What would make you consider someone internally if running the numbers wasn't what made it make sense? Basic business practice is to run the numbers. I know our clients do all the time and can't beat what we cost. Why would you think we hadn't run the numbers?
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@Carnival-Boy said in MSP Teams in the SMB:
By employing internal IT staff, I'm cutting out the middle-man, and handling the expenses and management myself.
Yes, so you are handling expenses and management yourself. Are those things in your (company's) wheelhouse? Unless you are a payroll firm, handling payroll internally is not a benefit, that's why the Fortune 1000 firms try to avoid that. Is IT management in your (company's) wheelhouse? Unless that's your business (which would make you an MSP) then that's a negative, and generally a pretty huge one, to take on.
The middle man that you are cutting out is exactly the place where the value is. It's all the same functions that you have internally, so the idea that it is leaner to cut out the middle man and bring someone on in house is a false value center, each of those functions internally should be outsourced individually for maximum benefit (unless they ARE your business) so either you've eliminated more middle men or, more likely, taken on more cost and overhead - basically added middle men. Middle men are more likely internal than external.
How do you provide career growth, mentoring, training, variety, cross discipline support, scale and so forth with internal staff?
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@Carnival-Boy said in MSP Teams in the SMB:
My figures were purely an example. I'm interested to hear real world examples. When I worked for an IT company (many years ago), I was earning the company around $1,000 per day, but getting paid around $100.
$1,000 per day? That's $125/hr in profits. That's enormous. You've worked for some pretty high dollar companies. You are way, way outside of our range in this community. I've never heard of any MSP that earns that much, ever. Maybe the EDPs and IGSs of the world can make that because they change $500/hr. But even there I've not seen it, I'm just guessing. What were you doing that made your clients willing to pay so much? And why did they keep paying, what did you do that was worth so much?
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$1000/day profit implies billing rates of over $300... that's $175 for expenses and $125 for profit, per hour, and requires 8 hours every day to do it, so implies $450 - $600 / hour to keep that rate up. I can tell you that in the US, no MSP is even remotely thinking in those terms.
