You’re Paying How Much?
In my role of sales and marketing for IT services, I have talked to thousands of CEOs and business owners over the years. In fact, if you are reading this from DFW and you are in a leadership role of a company that uses managed services, there is a good chance I have even talked to you. Often I speak to business leaders or decision makers who give me the run-down of their IT situations and often red-flags are raised; I can tell with a quick conversation that what management perceives they are getting is not always the same as what they actually may be getting.
Not too long ago, I spoke to a company, who had 18 users. They are a little on the small side, so I wouldn’t expect them to be paying a substantial amount of money, but possibly somewhere around industry standards, at least.
The owner of the company told me that they were paying $580 a month, for 18 users, which included their two servers, monitoring, backups, antivirus, and onsite. An all you can eat, or so he thought.
It Doesn’t Add Up
On the surface it appears as if this business is only paying about $31 per user per month. That is unheard of, even when offshoring is involved for a company this small.
The average price per a user, for industry standards, is anywhere between $120 and $175 per month, for everything that this particular business owner thought he was getting (some prices are lower depending upon the collection of services and products actually included).
In the IT industry, we use all sorts of metrics to measure profit, loss, time, etc. That includes how many tickets are put in for each endpoint per month, the time to resolve them, and the support resources associated with them.
Even if the provider that this company was using cheaper and lesser experienced support personnel (which would mean more difficult issues go unresolved), the average network administrator, (from pay scale), makes around $25 an hour. When you add in the burdened cost of employee, (even at a conservative 20%), said company would have a staff cost of around $30 per hour.
- Employee Hourly Wage – $25
- Burden Cost – 20% – $5
- Total Staff Overhead – $30
I Asked the Business Owner How It Was Possible
Assuming, this IT provider receives only 1 ticket from this company per user, per month; then they are opening around 18 tickets a month and average time to address the ticket was an hour. At this rate, just the cost of closing those tickets consumes $30 of the $31 per user being charged. This leaves $18 per month to cover monitoring, patch management, anti-virus, etc. And then in the event that you replace systems, have a major service interruption, etc., then the expected 18 hours of service per month expands dramatically. This means if the service provider actually meets that owner’s expectations then they will lose money…just on labor cost alone.
I told him that those prices were much lower than industry standards, and possibly much lower than any IT provider’s cost. He said that he realized that and he asked the IT provider how they could charge so much lower than what everyone else was quoting him. They told him that because they made good profits on some of their accounts that it really didn’t matter to them if they lost money on other accounts. Seriously.
If you are in a leadership role of a company, or have a background in accounting, or even if you feel like you have good business sense, please just pause for a moment and wrap your head around that. At this point a prudent business leader should ask themselves if they really want to engage an IT partner that thinks losing money is a good business practice…especially if you expect them to advise you in regards to your business strategy.
The IT service provider was willing to take on a contract for which they not only, admittedly, are not making money on, but probably also losing money on, because they have profit in other places. (Now is a good time to add, the company I was speaking to was not a non-profit or something extremely cool like a rocket-ship builder for hamsters, they were just a normal for-profit office environment.)
Are Their It Situations Lining Them Up For Failure?
While one can imagine many reasons as to why the service provider is taking this approach, none of them are good for the client business owner.
They are not Providing You with Every Thing They Say They Are
They may be telling you that they are backing up your data and systems, but have your backups been tested? Have you been a part of those tests? Do you have measurable results and actionable items as an outcome from those tests? If the answer is no, then your data may not be getting backed up the way that you think it should. The backup process could be failing and no one actually knows…until you need it.
Are they truly monitoring your systems for real-time alerts of issues? Or are they just telling you that you are and hoping nothing goes wrong? Can they prove it to you? Do you get a monthly or quarterly report of your network’s health? Does your vCIO meet with you on a regular basis to talk to you about the condition of your network? If the answer is no, then they might not be monitoring your systems as you initially thought.
They Are Indeed Offshoring Their IT Support Roles
While you may already be aware of the service related nightmares than can occur when services are off-shored, you may not be completely aware of the risks involved when your business data is sent overseas to an unknown and unregulated destination.
Here are a few things to consider if your IT support is indeed being off-shored:
- What are the local laws regarding your intellectual property?
- What are the communication channels? Will there be language barriers?
- What are the processes for change management?
- Are time zones going to affect your level of support?
- Are there geopolitical risks involved?
- Will there be incentives for continuous improvements?
They are not Hiring Qualified Technicians that are Trained and/or Certified
It’s easy to assume that when you hire an IT company that everyone at that IT company will be trained and certified to work on your network. Unfortunately, that is not always the case. A recent CompTIA survey estimated that 40% of IT workers were not getting the training that they needed to be effective at their job.
If you have an inadequately trained technician work on your IT systems, you are putting your business at risk:
- Will their work follow white-glove standards for network security? Or will they put your data at risk?
- Could they cause an error that will affect your compliance requirements?
- Could they accidentally cause damage to your expensive equipment or hardware?
- Will they make an error that causes your systems to be down for an extended amount of time, hurting your bottom line and reputation?
There are way too many scenarios that could happen when untrained and uncertified people work on your IT systems. None of which will typically have a positive outcome for your business.
They are not Performing Background Checks on Their Employees
Not just that, also they could possibly hiring people who they know have criminal records, because they just don’t have the budget to embrace a quality HR process. Aside from the risks that the IT provider is taking in regards to workplace safety, high turnover, and job competency the lack of background screening for their employees is putting your business at risk too.
Would you feel comfortable letting people on your network and with the ability to access your sensitive and proprietary information if you knew that had spent time in jail for theft, scamming, or even hacking? Probably not.
They are not Keeping Adequate E & O Insurance
If a company is providing you a service for less than what it takes for them to break even, you have to wonder what might they be sacrificing in order for them to do that? Errors and Omissions insurance could be one of those things. If they don’t have E & O insurance, what will you do if:
- They don’t put antivirus on your network, leaving you open to hackers or ransomware?
- The lose all of your business data?
- They set your server room on fire?
As we all know, people don’t ever need insurance, until they need it. Even if we don’t anticipate anything going wrong, the same way that we don’t anticipate car accidents, it’s always better to be safe than sorry.
The Bottom Line
No matter what the reason is that a company tells you or what reasons they give you to justify providing service upon which they will certainly lose money, there will be a reason how they can do that. And regardless of the reason the end result is probably not one you desire. When something sounds too good to be true…it probably is.