How Can the FTE Model Compete with the MSP Model?
-
@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.
-
@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.
-
@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.
-
@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.
-
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.
-
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!
-
@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.
-
@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.
-
@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.
-
@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.
-
@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.
-
@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.
-
@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.
-
@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.
-
@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.
-
@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.
-
@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?:
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.
They only shift to the MSP the bookkeeper stuff of the now gone IT FTE, but the bookkeeper doesn't make less money because they are taking care of one less person - that's my point.
-
As I've read through this thread it seems as though you're taking many things as a given @scottalanmiller. Perhaps you have the data to back up your assertions, but we do not. We are not starting from the same point as you are because the data you are basing your conclusions on is not available to us. We also cannot simply trust your assumptions if we're to properly discuss the topic. Otherwise we just become an echo chamber and nothing of value is created. Is there some resource (outside of your own articles) that gives empirical credence to your conclusions?
-
@kelly said in How Can the FTE Model Compete with the MSP Model?:
As I've read through this thread it seems as though you're taking many things as a given @scottalanmiller.
I think that this isn't true. What I'm discussing is the models, and what I'm not doing is taking anything as a given.
It's pointing out that the assumptions from anecdotes are not givens is my whole point. It's the givens that are what I'm trying to remove.
