MSP Teams in the SMB
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Was just having another discussion and this aspect of the MSP versus internal IT "debate" came up: MSPs are about making teams of IT pros rather than one or two IT pros individual trying to cover all of the bases. Of course this has been said before, but it really struck home in the discussion just how much SMBs running with just one or two IT people on staff really have a weird sense of IT hubris and pride going on - feeling that their one or two people can "do it all".
The MSP model is one that accepts the fact that no one or two people can have the range of skills, experience, knowledge and tooling necessary to really cover all of the tasks and areas of expertise that any company would need, no matter how small. Horizontal skill sets (those covering multiple areas of expertise, such as Windows Systems, UNIX Systems, SAN Storage, Networking, Security, Desktop Management, Database Administration and so forth) each require their own time to learn initially and time on which to stay current. Each is a career in and of itself. Asking a single person to do that is problematic, if it is even possible. Even if one person could learn it all, keeping up with the latest trends, news, developments, patches, techniques and products in each arena is effectively impossible.
The MSP model is one that embraces human limitations. In IT we often want to believe that we can do it all, it makes us feel good and powerful. Not only can we do every IT discipline but we understand the business, fix all the stuff, design everything, run the cables, and everything else. And businesses, hoping to get all these expensive skills for one low, low price jump at the hope that they have found the one human capable of knowing and doing so many things and that they won't have to hire lots of people who know lots of different things. But, of course, it's an illusion. None of us could hope to do that.
By accepting human limitations and moving from trying to be individual super heroes to being effective teams of many experts we can make IT better both in results for businesses as well as careers for individuals. The idea of the super hero of IT is just too enticing for many individuals, and ultimately for many companies, to resist.
I use the term MSP loosely here, meaning any outsourced, dedicated IT service organization. ITSP.
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All of those things are true when MSP's are done right!
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@MattSpeller said in MSP Teams in the SMB:
All of those things are true when MSP's are done right!
Nothing is true when things are done wrong
The difference is, internal IT done right still has the problems. Just like how internal IT can be good or bad, external IT can be good or bad. But the model remains better. -
@MattSpeller said in MSP Teams in the SMB:
All of those things are true when MSP's are done right!
I agree. The theory is great, but in my experience, reality is very different. I've never known anyone to have a great experience with an MSP.
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.
That sounds great. I would go for that. I'd rather have 83% of an expert, than 100% of a generalist.
But in reality, the owner is more likely to take a 100% cut on top and buy a Ferrari. At least that's been the experience of all the MSPs I've known. 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.
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And to continue that on, each client gets like 5% of the tech because they are usually swamped with more work then they can handle. Yet to see an MSP in the UK get the model right, so many compromises are made and the client suffers as a result.
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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.
When you take a full time person from NTG (ITSP, but same difference here) there is no 20% cut on top, there is no profit at all, only necessary cost overhead for payroll processing and the like. I've worked for Wall St. and they use 2% as the overhead number for that through MSPs. So the industry standard is around 2% from what I can tell. The idea that MSPs take 20% isn't reality not logical. There is no way that would work. I've never witnessed an MSP being used correctly increase costs, ever. Sure bad MSPs are out there, but if anyone has ever paid them that way, the business was creating its own problems and should have known up front that there was an issue and found a better MSP.
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@Carnival-Boy said in MSP Teams in the SMB:
But in reality, the owner is more likely to take a 100% cut on top and buy a Ferrari. At least that's been the experience of all the MSPs I've known.
I've never found any MSPs like that. I certainly know that they exist, but I'm not coming across any in my travels. I know for certain that there are many MSPs not doing that that are not getting work. Maybe companies only like hiring people with Ferraris?
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@Carnival-Boy said in MSP Teams in the SMB:
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.
That's why you bill by the hour, so that that effect doesn't happen. Or why you select to pay by the hour, however you look at it. That's a condition that is always at the discretion of the client, not the MSP.
Also, you said this in conjunction with full time, dedicated, on premises workers where it would be impossible.
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My experience is that most MSPs are bad, but at the same rate that most internal IT is bad. We always talk about how MSPs share resources, don't provide good value, etc. But we forget to compare it to the internal IT staff. Look at SW as an example, you see tons and tons of people who don't know how to do their jobs, aren't getting support, are just skipping doing their job, are over paid, are doing side work while getting paid salary or whatever. All the same issues you get with an MSP, but without the accountability and structure benefits of the MSP. Real world - companies that hold IT accountable get good work most of the time, those that don't do not. But direct comparison, the MSP model is better, the people are equal. Apples to apples, which is admittedly hard to compare in this situation, the MSP seems to be the always winner to the customer.
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@Carnival-Boy wow you must have had a terrible experience, which is where we get lots of clients from (terrible MSP's).
But in reality, the owner is more likely to take a 100% cut on top and buy a Ferrari. At least that's been the experience of all the MSPs I've known.
How the crud did an MSP pull that one off? That is crazy and I have never heard of it.
MSP's that don't know what they are doing? Those are a dime a dozen, unfortunately.
I know that both NTG and Bundy Associates (@JaredBusch) operate on a very different level than 99% of the MSP's out there, neither company is an MSP, though I know that NTG has the offering. We are both ITSP's. Clients get the level of service that they pay for. If they want an onsite tech full time or just once a year they can have that. If they want a full 40 hours a week with a dedicated account manager with full support staff behind them for high level or even lower level needs they can have that. White glove service does come at a premium. Just depends on what they client wants.
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@Minion-Queen said in MSP Teams in the SMB:
But in reality, the owner is more likely to take a 100% cut on top and buy a Ferrari. At least that's been the experience of all the MSPs I've known.
How the crud did an MSP pull that one off? That is crazy and I have never heard of it.
Just to give a real world number on that.... a nominal resource, say a mid-level Windows engineer, is going to cost say $150/hr to deliver as a service. That includes the ability to pay that person, plus all of the costs of payroll, billing, accounts receivable, project management, taxes, insurance, context switching time, sales, marketing, tooling, training, management and so forth. Everyone gets paid at that rate, but the profits are pretty close to zero. That's a very round number, but it's a reasonable "at cost" delivery number and far below what you can get from a large MSP for any resource.
For the owner to make 100% on that, the $150/hr MSP would suddenly have to be a $300/hr MSP. That's a massive leap in cost without any change to, well, anything. Two MSPs delivering the same person from $150 or $300 as a rate, how would the $300 company ever get clients?
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@scottalanmiller said in MSP Teams in the SMB:
@Minion-Queen said in MSP Teams in the SMB:
But in reality, the owner is more likely to take a 100% cut on top and buy a Ferrari. At least that's been the experience of all the MSPs I've known.
How the crud did an MSP pull that one off? That is crazy and I have never heard of it.
Just to give a real world number on that.... a nominal resource, say a mid-level Windows engineer, is going to cost say $150/hr to deliver as a service. That includes the ability to pay that person, plus all of the costs of payroll, billing, accounts receivable, project management, taxes, insurance, context switching time, sales, marketing, tooling, training, management and so forth. Everyone gets paid at that rate, but the profits are pretty close to zero. That's a very round number, but it's a reasonable "at cost" delivery number and far below what you can get from a large MSP for any resource.
For the owner to make 100% on that, the $150/hr MSP would suddenly have to be a $300/hr MSP. That's a massive leap in cost without any change to, well, anything. Two MSPs delivering the same person from $150 or $300 as a rate, how would the $300 company ever get clients?
right? We have potential clients go with someone else at the $150/hour (cause of course there are terrible you get what you pay for MSP's out there charging $60/hour).
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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.
