Managed IT Services PRICING
The cost of Managed IT Services can vary widely. Fees range between R100.00 to R250.00 per user per month. Factors that affect cost are headcount, the size and sophistication of your IT systems, and whether you outsource some or all of the technology management functions. Your average 50-person firm can expect to pay around R5,000.00-R12,500.00 per month for fully managed IT services.
Want a general idea of the pricing for managed IT services?
Thinking about outsourcing your IT for the first time?
Are you planning to replace your managed IT services provider or “MSP”?
Need to augment your in-house team with some extra hands?
Or are you doing some research to make sure your current fees are competitive?
I’ve been in thousands of conversations on this topic since 2002. Two things ring true: the evaluation process is confusing and overwhelming. Most MSPs sound the same.
Everyone seems to have a sales agenda.
I bet you’re tired of hearing 25-year-olds who look like catalog models say, “I promise it’s plug and play.” (Me too. It’s not true.)
At Multi IT & Telephony Solutions, we may be in the business of managed IT, but our goal is to help you find the right fit. Even if that happens to be with someone else.
We prefer to be a guide in your journey, and let problem-solving alignment be the spirit that guides any further engagement.
The next steps always happen for a reason.
Are you ready to better understand the factors that affect managed IT services pricing? Let’s approach the topic with eyes wide open.
Getting an exact number depends on a host of factors
- What is your headcount?
- Do you have full-time IT employees?
- Do you need fully managed IT services?
- Do you need co-managed IT services?
- What’s already in the cloud and what’s onsite?
- Do you require a virtual chief information officer (vCIO services)?
- What is your geography?
- What is your industry?
- Where are you in the technology lifecycle?
- How many devices will be managed?
- What kind of coverage do you require?
- How much data do you need to be backed up?
- What is your operating maturity level?
- What type of pricing model makes the most sense for you?
- What are the set-up costs?
Key factors that influence managed IT services pricing:
What is your headcount?
Do you have thirty employees or 300?
Or just getting started with a few colleagues?
I’m glad you’re breaking out the company directory. This number is very important in determining your coverage needs because most IT firms base their monthly pricing on your headcount.
Do you have full-time IT employees?
Do you have any full-time IT employees or “FTEs”? If so, is their specialty line of business applications or infrastructure? Both disciplines are very different and seldom interchangeable.
Capterra has an online directory of more than 700 software categories. As you might imagine, there’s a Line of Business Application for every vertical:
- Real Estate
- And more
Application specialists manage software programs in-house. By department or functional roles within the organization. These subject matter experts contract with software developers or certified resellers. SAGE 50, Salesforce, HubSpot, and Right Networks (Hosted QuickBooks), etc.
You will not be contracting with an MSP to do any of the following activities on your behalf:
- Run income statement reports within your ERP system
- Conduct eCommerce user training
- Set up Buyer Personas within your content marketing software
What is your in-house help desk specialist up to most of the time? Infrastructure duties. These include:
- Password resets
- Correcting everyday office equipment operating fails
- Project management
- Audiovisual set up
- Wifi configuration
Whatever MSP you hire will be filling in gaps related to infrastructure. Understanding which skill set gaps you are trying to fill is very important.
Do you need fully managed IT services?
Fixed-Fee Managed IT Services include:
- User Help Desk
- Technical Support
- Cloud applications
- Mobile devices
- Web hosting
- Tech vendor management and more
Do you need co-managed IT services?
Fixed-Fee Co-Managed IT Services include:
- Technical Support
- Cloud applications
- Mobile devices
- Web hosting
- Tech vendor management and more
This hybrid plan creates a partnership between the MSP and the FTE at the client site. The MSP handles all the heavy lifting. And your FTE tackles lower level, every day, user support requests.
Why is this the best of both worlds? You get the physical presence and “grab by the collar” convenience of an IT generalist. Along with a full-service MSP “owning” mission-critical business tools.
From our experience, this FTE is almost always the liaison with the MSP. And will engage the MSP whenever they get in over their head.
What’s already in the cloud and what’s onsite?
If Cloud Solutions constitute the majority of your infrastructure, you’re in luck. Remote management will be much easier and less expensive for your IT provider. This means more favorable pricing for you.
The pricing goes up a bit for organizations with a combination of cloud and on-premise equipment. The provider will need to send engineers on-site from time to time which runs up their expenses (and yours). The amount of travel will also be a factor.
Virtual chief information officer engagement
How much guidance do you need from a Virtual Chief Information Officer or “vCIO”? Some businesses are further along in their digital transformation. So they only need vCIO light. This could amount to a few hours a month and is standard with most fixed-fee agreements.
Other organizations may need a much deeper level of strategic engagement.
- Do you have demanding compliance requirements? (New Cybersecurity Compliance Frameworks are everywhere.)
- Are you growing?
- Opening new offices?
- Trying to clean up legacy infrastructure to be more attractive as an M&A target?
- Did you recently suffer a major data loss or ransomware attack?
These scenarios always demand more time and attention. And potential extra costs deserve close review in the discovery process. For a deeper dive into examples, see Professional Services.
MSPs love to promote vCIO services. Remember how I said most of us sound the same?
vCIO engagements differ from one provider to the next. Some MSPs deploy commissioned salespeople and account managers who have lower-level technical skills and seniority.
Some MSPs dispatch senior-level executives. This team is non-commissioned and has a variety of technical certifications. These factors have a direct bearing on what you should expect to pay.
- Are you a single location?
- Do you have several locations around your city, state, or across the United States?
- Is each location traditional office space?
- Any shared workspace arrangements like We Work, Regus, or Industrious?
- What about work from home or a combination?
- Are you in major cities with modern Internet infrastructure? Or do you also have a partial footprint in more rural areas with less reliable access?
- Physical addresses are also important if your agreement calls for an onsite presence. Way out places may be harder to accommodate the demand for instant dispatch.
Every industry has different requirements related to technology, regulation, and compliance. Good news: Basic technology infrastructure is very similar, if not the same, across different industries. Most managed IT providers will be familiar with the following well-known usual suspects:
You can buy many of these brands on your own.
But there’s an easier way. One that will save you time and money.
Take advantage of the relationships most IT providers have with established wholesale distributors. Axiz, Tarsus, Pinnacle and First Distribution are a few of the larger distributors in Southern Africa.
Each distributor stocks thousands of SKUs. And every last item is searchable within the MSP’s Professional Services Automation system. “PSA” solutions empower engineers and project managers to help you get:
- Better pricing
- Faster delivery
- Factory-approved warranties
- More predictable project completion timelines
- Larger volume orders at scale
PSA tools allow MSPs to leverage a repeatable process that is harder to execute on a one-off basis. Going through Amazon sellers, New Egg, Tiger Direct, Office Depot, or Best Buy can be risky.
Every year we talk to businesses who thought they were getting a good deal. Until they received desktops installed with home/office versions of Windows 7, 8, or 10. These operating systems were not only incompatible with their network. They were also not approved by Microsoft for business use. The compliance plot point is not a trivial one. Microsoft fines run thousands of dollars per incident.
Consumer-grade hardware has other issues too: limited warranties, typically one year versus three years or longer, and factory, preinstalled bloatware which can impact system performance.
IT Providers will also administer and manage all hardware and software details:
- System Integration
- Specifying the right models and versions
- Moves, adds, and changes
- Contract renewal deadlines
- Return Merchandise Authorization (RMA) for all warranty issues and returns
It’s a common practice for IT providers to bundle recurring services on a single bill. Examples include software licensing, equipment leasing, as well as service and maintenance agreement fees.
This is a major convenience. But make sure you can identify these pass-through expenses. They’re different from IT service management fees. These items don’t represent a revenue stream for your service provider. Unless they are being marked up. More often than not, these fall under the sunk cost classification.
Every IT service evaluation should bring these distinctions to light. Otherwise, your current charges or new proposed fees may appear inflated.
On the flip side, an IT provider may submit a proposal that doesn’t include everything you need. Why? It makes their offer look less expensive. Then once you sign the agreement, they’ll circle back and mention you need to add 45 M365 licenses.
This is not always an underhanded move. Many IT companies assume you are already aware of the way it works. Here’s the skinny:
- Microsoft pricing is available all over the Internet
- Visit Microsoft 365 Pricing Plans, it’s the same for everyone
- You can buy a single Microsoft 365 Business Standard subscription for R192.80 a month
- Or your MSP can buy the same license on your behalf for the same amount of 192,80 a month and they receive a commission of R5.50
One visit to Microsoft’s website is usually all it takes for most people to want someone else to figure it out.
Where are you in the technology lifecycle?
Every piece of technology in your organization will expire at some point. This is a natural and predictable part of The Technology Lifecycle. The trick is to stay ahead of its fail date.
Some providers will agree to manage your environment “as is.” But they may charge you extra if your environment is nearing its end. Aging, distressed IT systems need extra attention and frequent intervention.
Certain pieces may be at risk of completely failing. This is expensive to handle and almost impossible to predict. And rarely does it leave either party feeling like they’re in a win/win partnership.
It’s critical to understand what pieces need immediate replacement. And which ones can be upgraded at a later date. You also need to weigh the potential legal liabilities for you and the provider. Some IT companies won’t take clients unless they agree in advance to make critical upgrades.
You can’t ignore potential costs related to project work
Many MSPs bill projects on a time and materials basis. The pricing will be similar if you’re comparing providers in the same service class.
Hourly rates for project work vary from R450.00 to R595.00 per hour
Some companies will charge a lower hourly rate and not make a time commitment on completion. So the clock is running. Other companies charge a higher rate and agree to a fixed fee for the project. This means a 4-hour workstation build at R450.00 per hour is the same cost as a two-hour workstation build at R900.00 per hour – R1800.00.
Most people would prefer the time savings of the 2-hour scenario. Most people would also like their rate capped at R1800.00 in the event the build takes longer. The R450.00 per hour rate would be a real liability if the build takes five to six hours. Many do.
Skill plays a role in the hourly rate as well. Higher-level engineers command a higher rate than lower-level engineers. Want your projects completed quicker? A more experienced engineer is your best bet. The cost trade-off is worth it.
Differences pop up when you compare mid-market IT providers with mom-and-pop IT, providers. The former may use a network of well-known distributors. The latter may get products from other vendors. And they could be after-market, consumer-grade, non-standard, or refurbished.
Number of devices and size of your digital estate
Getting an exact quantity is very important. What is being managed?
- Mobile devices
- Backup appliances
- Wireless access points
- Phone systems
- Power backup appliances
- Security cameras
Does each employee have several devices or is it a one-to-one relationship?
Does your network include home computers that need coverage and protection?
It’s important to get an accurate inventory of every endpoint in your digital estate.
Do you need 24/7 unlimited remote and onsite support?
Automated tools are now commonplace in the IT world. Around the clock. Monitoring. Managing. Securing. Check times four! This is a must-have with today’s elevated cyber risk. These services are basic table stakes that businesses have come to expect.
Some providers will take it a step further (pun intended) and put boots on the ground. Even in the middle of the night.
This is quite different than the following scenario:
- Your primary file server crashes at 2 am.
- [email protected] receives an automated alert.
- This opens up a service ticket.
- The MSP starts working on the problem the following business day.
Unlimited remote is a different animal. It’s 2 am and something in your office network or datacentre crashes. An engineer from your service provider is touching the ailing equipment within the hour.
White glove, onsite service will always be more expensive.
The same is true if you need onsite IT resources or staff augmentation for specific projects. Does your organization have several hundred employees? Certain user groups may need more guidance and manual intervention than others. Large sales teams at pharmaceutical companies. Or older volunteers at a non-profit.
This can be expensive unless the IT provider is sending a very green employee onsite. Will a beginner cut it with your team? If not, a more experienced IT professional will be more expensive. It’s unavoidable. They’re more expensive for your MSP to hire. R900K a year to be exact.
- Do you have 1TB of data or 500TB?
- Would you like it backed up onsite every fifteen minutes?
- Does it also need to be replicated offsite to a cloud and verified nightly?
- Do you want the ability to run everything in the cloud in the event you experience a major disaster?
- Need extra-added redundancy?
- Want your data backed up and stored across several different geographical areas?
Your backup needs can be simple, complex. Or somewhere in the middle. Each scenario has different costs.
Operating maturity level
Service Leadership, Inc. is an MSP consulting firm, known for its research on Operating Maturity Level or “OML.”
OML refers to specific stages of your business journey:
You advance from the first stage to the fifth stage by leveraging technology. And outsourcing everything that is not a core competency. There is a heavy emphasis on strategy, standards, and best practices. Efficiency, scale, and repeatable processes are also important.
The end game is to reach higher levels of performance and profitability. Your OML will influence the kind of IT provider you can afford to partner with and vice versa
A business with Beginning OML will not be a match for an MSP who is Scaling or Optimizing.
The Beginning organization is not likely to be an advocate of technology standards. And the Scaling or Optimizing provider would not agree to support an IT environment like this for a fixed fee. Too unpredictable. It would be a reactive, frustrating, money-losing proposition for both parties.
While an Innovating business could get a good deal from a Beginning MSP, I can’t imagine they would be able to keep up.
The type of MSP pricing model employed
Both Service Leadership and TruMethods use the term All In Seat Price or “AISP.” This is a quick and easy way to quantify the fees charged by best-in-class MSPs. These are companies you may have heard of because they get rated by organizations like the Inc. 5000, MSP 501, and MSP 500.
Each organisation sponsors annual award programs and ranks the top businesses and MSPs in the world. These are performance-based contests where participants must submit notary-verified financial data.
Why does this matter? The MSP industry has a heavy concentration of private companies. And the presence of impartial, third-party evaluation standards provides much-needed transparency.
It also nurtures a competitive spirit. This drives innovation and blesses businesses that work with MSPs.
The AISP model recommends a price range of R100.00-R250.00 per month/per person for Fully Managed IT Services. So an organization with 20 people might pay R2,000 to R5,000 per month.
An organisation with forty people and Co-Managed IT might pay the same amount. Not because they’re better negotiators. Part of their service is in-sourced. Part of their service is outsourced.
Service Leadership also mentions “Anything For A Buck” IT companies. AFAB for short. These companies represent an astounding 43% percent of the market.
Yes, AFABs definitely have lower AISP options than their higher OML counterparts. But be careful. Many are operating at gross margins below 3% or break even.
Make sure you conduct extensive due diligence before committing to an IT partner. Do they have O&E or cyber liability insurance? Are they SOC 2 compliant?
You have a business to run with assets at risk. And you want to make sure your provider is going to be in business as long as you need them to be.
Do I have to sign a contract?
Standard contract terms are 12, 24, and 36 months. More experienced operators will present you with a Managed Services Agreement with clear language and protections for both parties.
The more accomplished (and confident) of that bunch may offer you a no-questions-asked 60-day out clause. This is a solid move for MSPs who pick the right clients and have the wisdom and compassion to part ways with bad fits.
What are the onboarding or set-up costs?
Some providers charge. Some do not. Those who don’t charge typically do less onboarding. It’s that simple. It’s important to understand what is involved with comprehensive onboarding:
- The process takes sixty to 120 hours and spans sixty to ninety days.
- It includes an executive kick-off meeting with several site visits and interviews.
- Some providers issue 100-point punch lists to guarantee no stones are left unturned.
- Engineers and project managers (R75,000.00 to R125,000.00 a year resources) handle everything. Coordinate the transition with your existing vendors. Document all IT systems and users. Create new hire/exit checklists. Deploy management tools. Migrate data and mailboxes. Conduct security assessments. Implement MFA.
- Many providers conduct user orientation to introduce the service and demonstrate the best way to request support.
Project management of overlapping IT services is critical. Don’t abruptly pull the plug on your existing provider when you decide to make a change. Hot cuts are almost always a bad idea. A 4-week overlap is recommended. This allows for a smooth transition. It also gives your current provider an incentive to cooperate with a competitor. And you avoid surprises.
Providers who do comprehensive onboardings may still waive the charges. But they will probably lock you in for a longer term. Truth bomb: IT providers lose money when their employees work for free. And a 36-month term (or longer) may be the only way they make up for the loss.
Onboarding costs are usually correlated to your monthly rate. So, if your monthly rates are R2,000.00, R4,000.00, or R6,000.00, your onboarding charges should be in this general neighbourhood.
Your learning journey
The size and scope of your IT systems and headcount are the biggest drivers of cost. As a general rule, your expense increases when the number of moving parts increases.
The value of your assets, as well as your risk tolerance, are also crucial considerations. Do you have special compliance requirements? Are you concerned with privacy and safeguarding intellectual property?
Every business is unique. A management consulting firm with ten principals will have drastically different needs than a ten-person periodontist practice.
Interested in learning more about factors that affect managed IT services fees? Along with exact costs?
The Multi IT & Telephony Solutions team has decades of experience helping businesses figure this out. And we look forward to guiding you. Contact us online or call our offices in Johannesburg on 011 435 0450, Cape Town on 021 879 1950 and Durban on 031 331 0735