How Much Does Managed IT Services Cost?

How Much Does Managed IT Services Cost?
How Much Does Managed IT Services Cost?

One of the first questions we get asked when meeting with a prospective client is about how much managed IT services cost. The cost of managed IT services can vary greatly depending on the complexity of your IT environment, your business demands, how many technology users you have, additional projects you may need to execute, and the list goes on. In this article, we will give you some general pricing guidelines to know what to expect when pricing managed IT services.

When deciding how to address your IT needs, you will need to understand the different pricing structures managed service providers use and the pros and cons of each. This article will talk about hourly, block time, fixed plus hourly, and all-inclusive rate structures. Over the years, Velo has offered programs that use every one of these rate structures, so know that we are speaking from first-hand experience.

Managed IT Services Cost: Pricing Structures

All-Inclusive Fixed Fee

An all-inclusive, fixed fee payment model is exactly what it sounds like. A company is charged a fixed fee each month – typically determined by the number of technology users within the company – that covers all IT needs with little to no out-of-scope charges.

Most MSPs will charge $175 – 250 per user every month for this type of arrangement. We have found some providers that charge less than $150 per user for this type of program; however, we have never seen these providers consistently deliver a high level of service charging these below-market rates. The most successful client/MSP relationships typically land at a minimum of $200, while the market average might be closer to $125 – $150.

This all-inclusive model provides the most predictability in managed IT services cost and allows a company to budget for their spending. Beyond predictability, this model incentivizes the provider to be proactive and stop issues before they happen. Think about it, with an all-inclusive, fixed fee plan, your provider isn’t getting paid extra for out-of-scope or after-hours work and can lose money quickly if their clients are experiencing a lot of issues. All-inclusive, fixed fee MSPs use preventative and strategic measures to ensure their client’s technology is working efficiently at all times.

What is included in an all-inclusive, fixed fee MSP partnership? Here is a list that hits the high points of most offerings:

  • Bug fixes
  • Updates
  • New user setup
  • User termination
  • 24/7/365 support
  • Backups
  • Cloud Management
  • Vendor Management
  • Unlimited remote and on-site support
  • Best practice alignment
  • Strategic plan development and consulting

Hourly or Break/Fix

With an hourly payment model, you’re only paying for help when you need it, like you would with a plumber or a handyman. An hourly rate is charged based on the time it takes for your technician to fix the issue you are experiencing.

For example, if your WIFI goes out, you would call your IT guy, have them fix it, and pay them for the time it took to get your WIFI back up. Simple enough.

Most IT providers offering hourly rates will charge between $100 – 200 per hour.

Many companies see this as the perfect solution to simple fixes, especially ones with a small number of technology users that don’t experience many issues. The thing to keep in mind with hourly plans, however, is that there’s little to no motivation for the provider to seek lasting resolutions and reduce the number of times you need to call them. Unlike plumbing, information technology changes rapidly and requires strategic planning to ensure you’ll experience predictable results.

Also with the hourly pricing model, it is important to factor in additional costs you are incurring outside of your managed IT services costs due to the business interruption and downtime created by the issue you are paying to have solved.

Providers offering hourly plans cannot afford to take proactive/preventative measures simply because that is not typically billable time. In order for these providers to “pay the bills” they must carefully monitor their utilization rates and thus keep their engineers focused on billable issues and problems.

Something to note, with a few preventative measures taken, you can severely reduce the number of issues you experience and thus the number of hours you will be billed solving problems.

Retainer or Block Time

Retainer, sometimes referred to as Block Time, plans allow a business to purchase a bank of hours typically at a reduced rate. This can actually be an effective model for businesses that want to outsource particular predictable pieces of their IT support process. If you have a good handle on the number of hours you need to spend over a certain period, or you know of some repetitive tasks that must be performed, you can use block time or retainer arrangements to buy those hours in bulk at a discounted rate.

An example of a retainer plan such as this would be $2,000 per month for 15 hours per month, with hours beyond 15 hours being billed at $200 per hour.

Although this does allow a business to budget based on the hours in the contract, be aware of what is included in the scope and what may be billed outside of the scope (after hours, travel, and other expenses). Also, similar to hourly arrangements, the majority of block time or retainer arrangements include little to no preventative maintenance or proactive initiative.

Fixed / Base Fee plus Hourly

In this pricing model, the provider will likely include some proactive work in their fixed fee. IT providers can benefit from more predictable cash flow through these fixed monthly fees. Theoretically, this more predictable cash flow allows the provider to invest in people, tools, and services to provide some preventative measures for their clients.

As part of the base fee, many providers offer services such as monitoring, maintenance, and maybe even some security or anti-virus tools. Some providers may even include remote support with the base fee.

Pricing for this fixed fee plan can vary greatly, but typically we see this base fee come in around $50 – 100 per user per month. If you have 20 employees your base fee might be somewhere between $1,000 – 2,000 a month. It is important to be aware of what is included in this base fee. Often things like on-site support or support over a certain number of hours per month will be subject to additional charges.

The problem with this model, as we hinted at above, arises when providers fail to clearly define what is in and out of scope. All too often we hear from clients that previously used this model in which they agreed to a base fee of $3,000 per month but then were hit with several thousand dollars in additional billing every month. Even more importantly, if you’re paying less than $100 per user per month, we have found it is uneconomical for your IT service provider to invest anything substantial in the proactive services part of the package. Without significant preventative work, there is an increased demand on the provider for reactive services which will likely increase your out-of-scope charges.

Expenses Outside Of Normal Services

Additional Managed IT Services Costs

Even with an all-inclusive fixed fee plan, depending on your price per user, some providers keep certain items out of scope in order to keep the per-user cost economical. Here is a list of some of those out-of-scope items.

Projects

Projects are typically defined as an extensive migration or major change such as moving to a new location or upgrading servers, etc.

These projects would be handled outside of the managed services agreement and typically have their own agreement such as a separate Hardware as a Service (HaaS) agreement.

Onboarding

Like most contracts you enter into, the provider often requires upfront charges to begin work when partnering with an MSP. These onboarding fees are usually a one-time fee charged in addition to the hourly or monthly cost of managed IT services. Many managed services providers will waive any onboarding fee if the client agrees to a particular agreement term.

This charge can vary by provider but is typically either a fixed rate, regardless of your company size, or a match to your monthly fixed fee.

For example, a company with 75 users and a company with 15 users both partnering with Provider A could each be charged the same onboarding fee of $4,000 before their respective monthly fixed costs of $18,750 and $3,750 begin.

On the other hand, Provider B may charge the first company an onboarding fee of $18,750 and the second company just $3,750 to match their monthly charges.

The above example is calculated using a rate of $250 per user.

Return On Investment

Hard And Soft Costs

Now that you have a good understanding of the different pricing structures you may come across when searching for an MSP, it is time to discuss a company’s hard and soft costs.

  • Hard Costs – What you pay your provider for their services.
  • Soft Costs – Issues experienced such as downtime and IT inefficiencies that affect company revenue.

When technology breaks, you can experience inefficiencies, downtime, productivity loss, and even cultural decline, which all lead to loss of revenue. A few minutes here and there may not seem like a lot, but how much is that costing you in the long run?

It’s essential to keep track of these soft costs to compare them to the hard cost of your IT provider. Are you saving money on IT services but dealing with constant outages, downtime, and unresponsive support? These sorts of experiences are not par for the course! They are avoidable, and getting that white-glove service, and strategic guidance costs less than you may think. When you factor in the soft costs that can be cut out almost entirely, breaking up with your current provider might start to seem doable. While this transition can seem daunting – like a whole new set of headaches – a great MSP can get you onboarded and up to speed on their programs quickly, taking full responsibility for achieving a positive outcome. To learn more about Velo’s seamless onboarding process, check out the guide here.

Strategic Measures To Save You Money

The idea of paying more for IT is scary because we are all so used to its unpredictability. But investing in a provider that uses strategic, proactive measures to ensure your business is running as smoothly as possible will cut back significantly on those soft costs.

In our opinion, the return on investment you will experience when partnering with an all-inclusive, fixed fee MSP is well worth it. Here at Velo, the all-inclusive, or fixed fee offering, is the only program we offer. As stated previously, we used to provide programs across all of these pricing models, but many years ago, we decided to give the all-inclusive pricing model 100% of our attention.

Check out some of the resources below to see if an all-inclusive provider would work for you:

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