Goodbye Contractor, Hello IT Staff: Managed IT Services vs. Hourly Rates

Business.com / Technology / Last Modified: February 22, 2017

Although it seems contradictory, switching from an hourly rate system to managed IT services can actually save you money.

As a business owner, you’re always looking for the best service from your partners while reducing costs and increasing your price margin.

When dealing with an IT contractor, it may be tempting to only call them when problems arise and pay an hourly rate for however long it takes to fix the issue. But, paying an hourly rate can actually increase your costs and cut into your profit margin.

How exactly can switching from an hourly rate system to managed IT services save you money?

Related Article: The Most Common IT Mistakes: Which Ones Are You Making?

Maximize IT Service

First, managed IT services allows you to maximize the amount of service you receive without increasing your costs. Providers typically charge a monthly flat rate fee and in return your IT contractor fixes any problems that arise during your contract. Your IT contractor can address a range of technological issues, regardless of the size.

However, with an hourly rate system, you have to pay your IT contractor every time a problem arises. While an hourly rate system may seem to be advantageous if you only need IT services a few times a year, most businesses need more support than this. Every time an issue occurs, your costs increase when they could have stayed at a flat rate with managed IT services.

To prove how switching to managed IT services saves money, Resource One, Inc. calculated the annual IT costs of companies who switched from an hourly rate to managed IT services. According to Resource One Inc. companies who switched to managed IT services found significant savings. 

  • 13 percent cut annual IT costs by an incredible 50 percent or more
  • 46 percent cut annual IT costs by 25 percent or more
  • 50 percent cut annual IT costs costs between 1-24 percent 

With almost half of all companies who switch to a managed IT service saving a phenomenal quarter of their IT costs each year, managed IT services is the obvious choice if you want to reduce costs and increase profit margin.

Increase IT Efficiency

Second, managed IT services increase the efficiency of your IT contractor. Obviously, your IT contractor wants to maximize their earning potential, but this desire can either work for or against your business.

With an hourly rate system, the desire of your IT contractor to maximize their services naturally encourages them to take as long as possible to complete a project. By increasing the number of hours they work, they increase how much they are getting paid. While the IT contractor may be satisfied by this arrangement, hourly rates end up costing your business more money and cause longer delays.

With managed IT services, you’re only paying a flat rate so your IT contractor works as efficiently as possible to increase their earning potential. By reducing the amount of time that they spend on your issues, they in essence increase how much they make because they can take on more work and therefore more clients who each pay them a flat rate.

With managed IT services, the IT contractor is able to make more money because they have more clients, while you, the client, are able to pay less for their services. Both parties walk away happier with a managed IT arrangement.

Related Article: The Shocking Truth: Why Every Company Is a Technology Company

Decrease Downtime Due to Repairs

Thirdly, managed IT services decrease downtime due to technical repairs. Decreasing downtime due to technical repairs is vital to any business because downtime costs more than just the bill you receive from your IT consultant.

Downtime also costs the lost productivity of your employees who can’t work during the downtime as well as significantly damaging the reputation of your company. After factoring in the lost productivity, reputation, and other losses, Evolven calculated that for every hour a business loses to downtime, that business loses between $84,000 and $108,000.

Losing $84,000 is enough motivation for any business to strive to decrease downtime.

So, how do managed IT services decrease downtime for businesses?

As mentioned above, you are more likely to call your IT contractor whenever issues arise because your costs won’t increase. This increases the number of times you work with your IT contractor, which increases your IT contractor’s familiarity with your system. When your IT contractor is familiar with your system, they are better able to quickly identify and repair technological problems, decreasing downtime.

In addition, by addressing all of your technological issues, your IT contractor also has more opportunities to correct small errors before they turn into major problems. As Bill Gates once explained, “Treatment without prevention is simply unsustainable.” By avoiding major problems with preventative measures, downtime due to technical repairs significantly decreases.

While hourly rates may initially seem like a better deal, managed IT services decreases your spending when you actually calculate the costs, it can maximize your return on your IT costs and encourage your contractor to work faster, reducing your overall costs.

Switch to a managed IT service if you want more cost effective service, increased efficiency and decreased downtime.

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