How Can the FTE Model Compete with the MSP Model?
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The question I have never seen Scott bring up is the MSP making money on the backs of the workers.
So Scott said we consider the same employee in both cases. As an FTE, the employee, Bob, gets paid $60K + benefits, we'll assume that makes his total $80K/yr.
Wouldn't that same employee cost the MSP the same money? Assuming it does, Why would the MSP charge the same amount to the customer as they pay their employee? Isn't the MSP in the market to make money? And if they are wouldn't that suddenly make Bob cost more to the customer vs if the customer hired Bob as an FTE?
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@dashrender said in How Can the FTE Model Compete with the MSP Model?:
The question I have never seen Scott bring up is the MSP making money on the backs of the workers.
So Scott said we consider the same employee in both cases. As an FTE, the employee, Bob, gets paid $60K + benefits, we'll assume that makes his total $80K/yr.
Wouldn't that same employee cost the MSP the same money? Assuming it does, Why would the MSP charge the same amount to the customer as they pay their employee? Isn't the MSP in the market to make money? And if they are wouldn't that suddenly make Bob cost more to the customer vs if the customer hired Bob as an FTE?
Usually, he generalizes this point and stating that the FTE was not working the entire time so the MSP will not and thus will actually cost less.
But it is not an apples to apples. It is an assumption.
It is certainly true that the same person will cost more if 100% deployed in place of an FTE or the MSP will lose money. Because the MSP has the same overhead, taxes, insurance, bonding, etc., as the company.
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@obsolesce said in How Can the FTE Model Compete with the MSP Model?:
- Installing new physical servers, replacing HDDs, adding new server components, upgrading physical servers Bench work
- Plugging in network cables to servers, new network cables from patch panel to switches, adding network components to rack and servers... switches and NICs Bench work
- Replacing a users compter, imaging a users computer, replacing failed components on users computer Bench work
- User BYODs, Outlook/software setup on phones, tablets, etc. We do this remotely every day.
- User station setup, desktops, monitors, etc... location moves, scraping components Bench work
- ...etc... the list is actually pretty
bignon-existent.
So even for remote stuff and whatever... there are lots of ways to deal with this. Ignore that this isn't apples to apples and that FTEs have to deal with this too every day...
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Bench work on site is trivially easy to solve. Whether it is on call remote hands, on internal on site resource, a partner company, internal resources that handle these tasks, etc. Getting people to do simple non-IT tasks is very easy should these tasks be assigned to the MSP agreement - which is common, but also important to understand that this is outside of the scope of what MSP means and implies an outsourced bench department too. Common, but technically separate. (In larger companies, these tasks weren't even bench, but facilities as they were seen the same as lamps, chairs, desks, etc.)
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This kind of work is typically a tiny fraction of the overall work in IT. There are exceptions, but a typical environment this is around 1-2% of the workload if IT and bench are merged.
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Having worked in both MSP and remote MSP work for decades, this stuff is important, but generally exceptionally simple to handle. It might seem like a big deal, and for some company it is, but for normal companies, it is not.
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Traveling resources are a great way to go too. For example, @gjacobse went to NC for a week recently because they needed someone in site. I went to Atlanta recently. There is more than one way to skin that cat.
But it is important to remember, the overall topic isn't about remote vs. local, but FTE vs. MSP which have no such intrinsic values. If we want to discuss remote vs. local, we have to look at not the hiring model, but the remote hands, work from home, choosing location, etc., benefits.
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@krisleslie said in How Can the FTE Model Compete with the MSP Model?:
@scottalanmiller in that model, then it assumes no company ever should have a FTE or a FTE in IT only?
One rule: FTEs should be in core competency, and no other department.
There are places where exceptions are soft, though, like janitors and unskilled work.
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@dashrender said in How Can the FTE Model Compete with the MSP Model?:
Wouldn't that same employee cost the MSP the same money? Assuming it does, Why would the MSP charge the same amount to the customer as they pay their employee? Isn't the MSP in the market to make money?
So this is actually a great question and one that comes up internally (we are an MSP) a lot. But the answer is actually surprisingly simple:
It's a loss leader (or really a "break even" leader.) It doesn't make money, but it doesn't lose money, so it's no big deal to do. But it has other benefits, like growing the company, testing and proving staff, etc.
All that says why MSPs don't care and are willing to do it. But that doesn't explain why they'd want to do it. But that answer is easy once you notice the one thing that I said earlier which is - using a one to one pure FTE scenario is a one in a million scenario. It's basically no risk to the MSP, they could do FTE replacement all day, every day and break even. Whatever. But if any client doing that decides to move to any alternative model then the MSP starts making money. And in the real world, it's not the one in a million customer that does that, it's the one in a million that doesn't.
Think of it like going to the grocery store. You can buy anything that you want. All of the products are marked up 5%. Except for the apples, they are "at cost." Sure, customers are free to come in and buy at cost apples all day, every day. But the reality is is that every customer is going to buy more than just apples, and many customers won't buy apples at all.
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@scottalanmiller said in How Can the FTE Model Compete with the MSP Model?:
All that says why MSPs don't care and are willing to do it. But that doesn't explain why they'd want to do it. But that answer is easy once you notice the one thing that I said earlier which is - using a one to one pure FTE scenario is a one in a million scenario. It's basically no risk to the MSP, they could do FTE replacement all day, every day and break even.
I don't agree with this - what about billing the customer for that MSP employee? Who's doing that? what about the tax filings and payroll filings, etc?
As an FTE, that stuff is handled by the person who does it for all FTEs, but if you have a MSP that has nothing but placed personal, the MSP still needs their own accounting people, etc to handle that, meaning the MSP is now loosing money. -
@dashrender said in How Can the FTE Model Compete with the MSP Model?:
I don't agree with this - what about billing the customer for that MSP employee? Who's doing that? what about the tax filings and payroll filings, etc?
All of that is break even. The cost of an employee is the cost of an employee. As an MSP, I know that we run through this with customers and the cost is the same.
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@dashrender said in How Can the FTE Model Compete with the MSP Model?:
As an FTE, that stuff is handled by the person who does it for all FTEs, but if you have a MSP that has nothing but placed personal, the MSP still needs their own accounting people, etc to handle that, meaning the MSP is now loosing money.
No, where in that is there money lost? Nowhere. Because the cost of all of that is moved equally from one entity to the other.
This only seems like lost money if you don't do apples to apples and ignore the actual cost of an employee to the company and only look at the received salary. If an employee costs the client $50K to employ, they will cost the MSP $50K to employ. It's that simple.
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You can argue that clients have better payroll rates than MSPs, but that's not the case. That is randomly comparing two business processes in two different businesses. Those rates are pretty much flat and when not flat, it is just as likely that either party has them cheaper or more expensive. There's no specific benefit to either party.
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But that doesn't make sense. If you didn't know what the cost of the FTE was at first, and came in and charged set rates, there is a 50% chance you cost the same and a chance you cost more or less. You have to prove if you do cost more why it would be more efficient and effective to use a MSP vs a FTE (or a group of FTE).
But it dawned on me, I think we are all trying to assume and generalize a lot of different factors which leads to disagreement.
I can agree that if the same company hired me on as a FTE that I work for as a MSP he would be paying more to have me vs just me staying as MSP. But then would come a conflict of interest I couldn't work my real IT job as a FTE and also 2nd company as a FTE. That would be insane on my part!
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@krisleslie said in How Can the FTE Model Compete with the MSP Model?:
But that doesn't make sense. If you didn't know what the cost of the FTE was at first, and came in and charged set rates, ...
Why would you do that? This assumption isn't valid.
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@krisleslie said in How Can the FTE Model Compete with the MSP Model?:
But it dawned on me, I think we are all trying to assume and generalize a lot of different factors which leads to disagreement.
I stated that up front... all of the "MSPs have X issue" are always assumptions that CAN be true, but can also be true for employees or can simple "not be true." They aren't aspects of MSPs, just things that could be true.
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@scottalanmiller said in How Can the FTE Model Compete with the MSP Model?:
@dashrender said in How Can the FTE Model Compete with the MSP Model?:
I don't agree with this - what about billing the customer for that MSP employee? Who's doing that? what about the tax filings and payroll filings, etc?
All of that is break even. The cost of an employee is the cost of an employee. As an MSP, I know that we run through this with customers and the cost is the same.
The cost is the same only if you are actually sending the customer a larger bill for the MSP employee than the company would have for a direct FTE. Because the customer has to pay the MSP for those services - i.e. write a check for those services. But if that's the case, then the employee doesn't really cost the same, unless the company pays their payroll person that much less because they aren't handling the information for that IT FTE. which seems unlikely.
I know our bookkeeper isn't paid based upon the number of employees we have. If we have 90 employees, she gets the same pay as if there were 100 employees. This becomes an issue when the bookkeeper hits the time limit to get things done, normally they can add 10 employees without running out of time to get their jobs done.. but say add another 100 employees, that might be another story.. now they need OT, or a second bookkeeper, etc.
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@scottalanmiller said in How Can the FTE Model Compete with the MSP Model?:
@dashrender said in How Can the FTE Model Compete with the MSP Model?:
As an FTE, that stuff is handled by the person who does it for all FTEs, but if you have a MSP that has nothing but placed personal, the MSP still needs their own accounting people, etc to handle that, meaning the MSP is now loosing money.
No, where in that is there money lost? Nowhere. Because the cost of all of that is moved equally from one entity to the other.
This only seems like lost money if you don't do apples to apples and ignore the actual cost of an employee to the company and only look at the received salary. If an employee costs the client $50K to employ, they will cost the MSP $50K to employ. It's that simple.
Sure, but see my answer above about the bookkeeper.
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@scottalanmiller said in How Can the FTE Model Compete with the MSP Model?:
You can argue that clients have better payroll rates than MSPs, but that's not the case. That is randomly comparing two business processes in two different businesses. Those rates are pretty much flat and when not flat, it is just as likely that either party has them cheaper or more expensive. There's no specific benefit to either party.
Never said there was - but in the case where the MSP's only business is planting butts in chairs at a customer, and then charging the exact cost of that employee to the customer - how does the MSP do billing? The MSP now needs an employee who's job it is to do payroll, etc. Where does that money come from in a company that has zero actual income because they are only deploying butts to seats for actual cost - granted not a real situation, but you stated an MSP could be this way, so I'm trying to see it fully.
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@dashrender said in How Can the FTE Model Compete with the MSP Model?:
The cost is the same only if you are actually sending the customer a larger bill for the MSP employee than the company would have for a direct FTE.
We've covered that this is incorrect. Don't keep repeating it. the cost is IDENTICAL. This is not a theory, it's easy to prove as MSPs do this. This is fact, I'm not sure where you are getting this idea, but it is simply false.
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@dashrender said in How Can the FTE Model Compete with the MSP Model?:
Because the customer has to pay the MSP for those services - i.e. write a check for those services. But if that's the case, then the employee doesn't really cost the same, unless the company pays their payroll person that much less because they aren't handling the information for that IT FTE. which seems unlikely.
The customer pays the MSP the exact same amount that they pay without an MSP. Exact. Period. End of story. Exact means the same. They pay the same with or without the MSP.
I have no idea where you think there is extra cost involved, but wherever you are thinking, it is wrong. Because the amounts are the same.
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@dashrender said in How Can the FTE Model Compete with the MSP Model?:
I know our bookkeeper isn't paid based upon the number of employees we have. If we have 90 employees, she gets the same pay as if there were 100 employees. This becomes an issue when the bookkeeper hits the time limit to get things done, normally they can add 10 employees without running out of time to get their jobs done.. but say add another 100 employees, that might be another story.. now they need OT, or a second bookkeeper, etc.
MSPs can work the same way. There is no possibility of giving an example of an FTE having a unique situation because literally ANY situation with an FTE an MSP can do, too, but with more options.
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@dashrender said in How Can the FTE Model Compete with the MSP Model?:
@scottalanmiller said in How Can the FTE Model Compete with the MSP Model?:
@dashrender said in How Can the FTE Model Compete with the MSP Model?:
As an FTE, that stuff is handled by the person who does it for all FTEs, but if you have a MSP that has nothing but placed personal, the MSP still needs their own accounting people, etc to handle that, meaning the MSP is now loosing money.
No, where in that is there money lost? Nowhere. Because the cost of all of that is moved equally from one entity to the other.
This only seems like lost money if you don't do apples to apples and ignore the actual cost of an employee to the company and only look at the received salary. If an employee costs the client $50K to employ, they will cost the MSP $50K to employ. It's that simple.
Sure, but see my answer above about the bookkeeper.
You're bookkeeper answer has nothing to do with it and doesn't tell us anything. I'm not even sure how you are picturing that they relate.
If your bookkeeper was moved to an "FTE-equivalent" outsourced service they would remain identical. That's how it works. Same costs, same limitations, but with more options.
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@dashrender said in How Can the FTE Model Compete with the MSP Model?:
Never said there was - but in the case where the MSP's only business is planting butts in chairs at a customer, and then charging the exact cost of that employee to the customer - how does the MSP do billing? The MSP now needs an employee who's job it is to do payroll, etc. Where does that money come from in a company that has zero actual income because they are only deploying butts to seats for actual cost - granted not a real situation, but you stated an MSP could be this way, so I'm trying to see it fully.
All of those costs, like billing, payroll, etc. already exist for the FTE. They are simple shifted to the MSP. I don't know where you think that one employer gets these things for free and another has to pay for them. The client and the MSP have equal costs here, that's why shifting the person from one entity to the other is a break even. There is nowhere for "additional cost" to be incurred.
The extra cost that you are insisting on simply doesn't exist. MSPs only incur new overhead when doing things FTEs can't do. But they never have to do those things so there is no necessity for that overhead. That overhead only gets injected when it proves to be advantageous (which is almost always.) But that proves the point - that MSPs bring advantages.
