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If you’re comparison shopping for managed IT services, then you’re probably struggling to compare apples to apples as you look at different firms and bids. If every service provider is utilizing a different cost structure, it can be difficult to identify the service provider and the cost structure that’s the best fit for you. So let’s take a look at how managed IT services are priced and the implications for your budget.

Cost Structures for Managed IT Services:

There is a range of cost structures that are common in the IT services industry. It is important to understand that there isn’t a one-size-fits-all cost structure, and each has pros and cons. To further complicate things, each firm may use multiple cost structures at different times depending on the nature of the work. Choosing the right one depends on various factors, such as technical specifications, your team, and the job scope.

There are four basic cost structures that we will explore in this blog post:

(1) Hourly Rates

Hourly Rate is the most basic cost structure, where clients are charged an hourly rate. Just like any other business services provider, IT firms set their rate, do the work, and bill accordingly. Typically IT providers charge between $100 to $300 per hour, and potentially higher if there’s a greater sense of urgency. This cost structure can make sense when there is less clarity about the ongoing needs and their duration or nature. For instance, if the scope is to be on call at any time for any potential type of problem, then the hourly rate may be the most sensible cost structure. On the other hand, if the scope is to perform system maintenance on a recurring basis, that might lend itself to a clearly defined cost model that has bundled services.

A downside to the hourly rate cost structure is that it doesn’t incentivize efficiency and permanent solutions. If a problem drags on or repeat issues occur, more hours will be billed to the benefit of the IT firm.

(2) Fixed Fees for Bundled Services

The fixed fee cost structure is a flat rate per user. Most managed service providers bill anywhere between $175 to $300 per user per month. The figure may decrease, but our research shows that the quality levels also decline significantly due to the short-staff team putting in minimal to no proactive effort.

From the IT firm’s perspective, this structure simplifies the invoicing process considerably. And because there is transparency and fixed scope, there aren’t many unanticipated charges. However, the cons with this approach are that IT firms may cut corners to maintain profit margins, so this option may be counterproductive if the tradeoff is quality of work and lack of proactive, forward-looking strategies.

(3) Retainers

Retainers allow clients to receive a reduced rate in exchange for an agreed number of hours. This cost structure is best for companies with specific IT needs. A typical retainer might cost around $2000 to $2500 per month for 10 to 15 hours of work, with any additional work to be billed at about $175 to $250 per hour. While this may seem fair, the downside is that the contract needs to be monitored to ensure that the allotted hours are not exceeded and that the extra hours are billed appropriately. When in a retainer, it is important to clearly define what is “out of hours.”

(4) Additional Fees

Depending on the cost structure and service provider, certain services or projects may fall outside the scope of the base fee. These additional fees could include separate projects like extensive migrations or server upgrades, which may require customized quotes and affect the existing agreement. Onboarding fees are also common, requiring upfront payment before the managed service provider begins their work. It's crucial to carefully evaluate what each provider charges to determine the true cost of their services.

Choosing the Best Cost Structure:

While understanding the cost structure of IT services can be confusing, an all-inclusive managed service provider (MSP) often provides the best return on investment. At Strategic Response Systems, our objective is to employ a fixed fee structure whenever possible, particularly in cases where the scope of work is well-defined, and there are minimal uncertainties. When the scope is unclear, we typically initiate the project with a retainer consisting of a set number of hours until a point is reached where a fixed fee structure can be implemented. For smaller projects that can be completed in under 15 hours, we may opt for hourly rates and provide an estimated range of hours (both high and low) if a fixed fee structure is not feasible. Our goal is to ensure transparent discussions regarding costs upfront so as to avoid any unexpected surprises during the project's execution.

Conclusion:

Determining the cost of managed IT services requires thoroughly examining cost structures and the services included. By understanding the pros and cons of each approach, you can make informed decisions that align with your business needs. Whether you choose a bundled or fixed fee model, opt for hourly rates, or consider a retainer plan, it's essential to assess each IT firm and understand its cost structure to find the best fit with your needs and budget. We encourage you to review our client testimonials and case studies and explore our services to better understand what we offer. We’re always here to talk.

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