Managed Services Providers

Should you hire a Managed Service Provider or MSP?

The term "MSP" can cover a lot of partially-overlapping ground. e.g. Help desk type services and virtual server services, to name a couple. Some MSPs may specialize in one area while others have multiple, dissimilar managed offerings. It's a broad subject area in the I.T. world.

In this article, I'll focus on infrastructure-based managed services. This type of MSP generally provides, in part, the following services. These are the same services that most pay-as-you-go I.T. consultants offer as well.

  • Hardware health monitoring

  • Backup systems

  • Network monitoring

  • Help desk and break-fix

  • Anti-malware security and monitoring

  • Remote-based maintenance and perhaps onsite maintenance as well

  • Update and hotfix management

  • And other things that a specific client may need


Cost

The first cost metric is usually based on the number of assets covered (how many computers, monitors, printers, etc.) or simply by number of users. As offices have more devices these days then the per-user model is becoming more common.

 

Other cost metrics are based on any/all of the following points depending on what is important to you.

  • Monitoring only; mitigating action costs extra

  • Fixed or unlimited hours or incidents per asset or per user per contract period

  • Onsite included?

  • Guaranteed response time?  e.g. 2-hour, 4-hour, same-day, next-day, etc?

  • Business hours only (8/5), 24/7, or something in between?

  • Failure or error mitigation only or new functionality as well?

  • Assigned or random technician?

  • Periodic equipment upgrades, refreshment, or replacements included?


Most MSP contracts are for labor only -- no parts, equipment, or other tangible expenses included. MSP contracts that do include periodic equipment refreshment or replacement or other tangible expenses cost more.

 

Why MSP Plans Exist

As you've probably observed, an increasing number of software products these days are subscription-based. Microsoft Office, many Adobe products, anything in the "cloud", etc. are all subscription-based. The answer to why is obvious: It provides a reliable and predictable income stream to the software maker.

 

I.T. consulting firms, especially those with multiple employees, have long ago moved to managed service contracts for exactly the same reason. These contracts generate reliable and predictable income to the MSP.


Imbalance

A big problem with an MSP is utilization imbalance. That is, are you making enough use of your MSP to warrant the cost? Depending on the service level you require, your monthly costs might be anywhere from $50 to $250 per user per month. The lower end of that range might only include automated remote monitoring services.

Suppose your MSP charges $150 per user per month which is in the mid-range of cost today. And suppose you have 10 users in your business, including yourself. The annual cost would be $18,000. Are you getting $18,000 worth of use from that contract? If you are under utilizing your MSP then you are throwing money away -- likely quite a lot. Similarly, if you over utilize your MSP (especially if by a lot), they may hike your rates at the next contract renewal. It's rarely a true break-even at the end of the contract. That would be quite a coincidence, yes?

 

15 Users? That's $27,000 per year. Those numbers get pretty high, pretty quickly.

Conversely, a "pay as you go" or "time and materials" (PAYG or T&M) I.T. consultant might charge $75 to $150 an hour. Assuming $100 per hour, that same $18,000 annual cost would pay for 180 hours of work per year. Did all of your I.T. needs for which you needed professional help hit 180 hours last year? Probably not.

 

Another reason MSPs cost more is there are more mouths to feed. With an MSP, a hired tech usually does the work, be that remote or onsite. The MSP owner is usually more engaged in business development. The tech, the guy doing all the work makes a fraction of the hourly equivalent. The owner, who doesn't do much of anything from your perspective, gets the majority.

MSPs advertise that by constantly monitoring your systems, they can head-off potential trouble before it arises. There's a grain of truth in that, but the full truth is that many problems give no indication of upcoming trouble. Employee workstations and networks generally get along without a lot of close intense monitoring. And to the extent that monitoring is helpful or needed, much of it is automated, issuing warnings only when it spots trouble. The MSP isn't burning a lot hours by manually checking on these things.

Servers, however, do require closer monitoring and maintenance due to their critically importance nature. But any decent PAYG/T&M provider offers server monitoring as well. You don't need an MSP just for that.

MSPs in general are on the winning end of their contracts as they have the experience and upper hand in negotiating rates and terms. An MSP likely has dozens of clients whereas a client would have only one MSP. If the MSP has been around for any length of time then they've figured out how to price their services and negotiate contracts to come out on top.

Ultimately there's no definitively right or wrong answer to the MSP vs PAYG/T&M arrangement. Probably the biggest question to ask yourself is how heavily your firm relies on outside I.T. expertise? Is your firm, your employees, particularly needy, calling for every little thing? Or do you only need help with the heavy lifting?

My Business Model

I'm a PAYG/T&M I.T. consultant for the reasons of imbalance that I discussed above. I provide good value and very detailed invoices. I don't gouge on remote control, bill extra for off-hours work, and phone calls for advice or to ask questions are always free. I prefer smaller clients and these clients tend to favor the PAYG/T&M approach anyway.