MSPs (Managed Service Provider) have been around the IT service landscape since the early 2000s. IT service companies adopting this delivery model have grown to over 40,000 in the United States. MSPs now represent most outsourced IT services delivered to small and medium sized businesses—i.e., approximately two-thirds of IT service providers adopt some level of MSP services with the majority adhering to a strict MSP delivery model.
For businesses and organizations that receive some level of outsourced IT support but are not sure if their support provider is an MSP, this thought piece will provide you the answer by giving insight into how MSPs operate and how they compare to service providers that adopt a hybrid approach to delivering IT services. If you are having misgivings about your MSP this thought piece may validate some of your concerns.
How MSPs Operate
The MSP delivery model is rooted in proactive preventative maintenance—i.e., finding problematic issues before they pose potential down time and remediating threats before they occur. MSPs evolved from the advent of remote application service provider platforms (ASPs) that made it possible for technology professionals to manage networks remotely. These platforms have evolved into full-service offerings with the ability to monitor, track, and execute tasks of critical technology infrastructure from afar that includes:
- Monitoring network infrastructure performance, i.e. network devices, endpoints, etc.
- Automated updates and patching
- Security
- Back-up and Recovery
MSPs will typically bundle these monitoring services with scheduled routine onsite visits, which may be limited or unlimited, as well as typically unlimited remote support for day-to-day reactionary issues all at a flat rate (make note of the aforementioned). Contract agreements are typically tuned for reoccurring maintenance, which may include on-call remote emergency support with the option for out-of-scope onsite visits, infrastructure hosting, and applications management that can be built into the cost. This is often referred to in the industry as “all you can eat”. MSPs hold their heads high on providing wrap around IT services. They will compare the benefits of the MSP delivery model against the shortcomings of traditional services that are often referred to as “break/fix”. Break/fix providers are often portrayed as fixated on meeting or exceeding hourly billable goals whether it be achieved through time and material billing, through guaranteed billable hours generated from regularly scheduled onsite maintenance, or both. It is true that billable hour work can be potentially an expensive endeavor. However, it is also true that the traditional break/fix model of IT services by and large is no longer widely practiced. To be fair to those few existing traditional break/fix providers, it would be disingenuous to assume the intentions of all break/fix shops are a part of a wider conspiracy to nickel and dime their clients as is often portrayed in MSP marketing materials and content.
Most IT service professionals that do not adhere to the traditional MSP model follow a ‘hybrid’ model for delivering services. There can be real benefits from using an MSP for all you can eat services, particularly if a business is looking to completely outsource all Its technology responsibilities from network to endpoint to applications management. However, there are caveats to this. We’ll begin by going over the caveats of the MSP model and contrasting them to the hybrid practices of many non-MSP providers.
To make sense of how MSPs provision and charge for services, think in terms of health insurance, i.e. being on either a gold or platinum tier health plan. Most MSPs will require all “you can eat” service which includes monitoring of your network, security, back-up, and unlimited remote and / or onsite support. A step above is when the MSP provides/leases hardware, hosts the network, and provides all the application licenses (e.g., M365, VMWare, etc.), operating network licenses, and company domain. For MSPs it’s a numbers game and the way to get ahead is through contract by volume—i.e. locking in clients to fixed fee contracts that are padded. Similar to the insurance model, the formula ensures that if a set of customers in any given month have support overages, the MSP is more than covered by the mere volume of contracts. Like an expensive health insurance plan, you are paying a premium for preventative care. Also, just like with any insurance plan there always going to be out pocket costs—e.g., network upgrade, cloud migration, disaster recovery scenario, etc. The MSP recipe rests on automated intervention and minimizing the necessity for human intervention as much as possible to maximize revenue.
Standard MSP Practices
Here are caveats associated with core standard practices of MSPs that all potential customers should consider carefully before signing a contract.
- MSPs charge a monthly flat rate and position this as more price advantageous to an hourly rate. The truth of the matter is an hourly rate is always a part of the equation in determining the fixed rate. The reality is the cost of doing business with an MSP can get expensive. (We’ll get more in to pricing later)
- Coat tailing on the last point, monthly fixed rate for services including unlimited remote and onsite support is not unlimited. It works just like the unlimited data plan for mobile phones. All mobile carriers have an unspoken limit on data. If you happen to meet that limit before the end of the month and go over the limit, there is no consequence of additional charges, but your performance will be throttled. Businesses on MSP contracts will experience a slowdown in response times if they happen to regularly require a high demand for support. MSPs try to work in all possible scenarios to make sure they have a healthy buffer to cover demand.
- Speaking of contracts, All MSPs require contracts. In some cases, for terms as long as 5+ years and at the very least annual contracts that require annual renewal. This is one way to keep their clients locked in.
- An MSP fixed fee/unlimited services contract is a textbook example of a bait-and-switch tactic.
- Many MSPs offer hosting services, lease equipment (endpoints and network hardware), and manage applications. When afforded the opportunity, an MSP will jump at this opportunity. This is more beneficial to the MSP in a lopsided manner because it keeps their client locked in. The MSP holds all or nearly all the keys—i.e., they own the network environment, they own most or all the hardware, they own most or outright own all the application licenses and data. Some may even own the domain to the client’s business.
- Some MSPs but not all will limit or deny clients their rightful access to the back end of the network.
- MSP staffing is top heavy with a low wage inexperienced workforce, as most of the work is looking at a dashboard and addressing minor technical requests, such as resetting passwords or onboarding a new account. The revelation here is someone with little to no IT experience can be trained and spun up to navigate and operate a monitoring platform within three or four weeks. This explains the gaps in quality of service. It is common for the staffing raito of inexperience versus enterprise skillsets for MSPs to be 4 to 1. This is how MSPs keep their margins high and keep rates lower on projects as they make up for it with the volume of service contracts.
- Continuing with experience; it is also more likely than not the front-line help resources a customer interacts with is actively learning on the job. The industry turnover rate is around 12-18 months.
- Down to the brass tax; doing business with an MSP can be expensive. Monthly charges for services are wide ranging. In simple terms an MSP contract can range from approximately a $145 to over $250 per employee or endpoint. Depending on where you fit in the SMB category, a business can be paying anywhere from $2,500 to well over $10,000 a month to an MSP.
What Distinguishes Hybrid Providers from Traditional MSPs
How do hybrid providers like Nims & Associates contrast to the MSP model? Here are several key differentiators.
- Hybrid providers do not upcharge beyond the range of standard margins for network & device management, backup management, and security management. MSPs apply a high mark-up. Note, we all use the same tools.
- Hybrid providers do not consider non-human intervention to be support time (MSPs will offer monthly support logs of hours and it will include automated tasks as a part of those hours without delineation of what was an automated process and what was not). For an MSP an automated process is considered official work time.
- Hybrid providers do not make it a practice to lock clients into long term contracts. Most hybrid providers will ask for an initial 6-to-12-month commitment when onboarding a new client and then the agreement goes month to month. The initial commitment is just to get familiarized. It’s all about trust, integrity, quality service, and mutual collaboration.
- Hybrid providers tend to steer clear from hosting, leasing hardware or owning and provisioning application licenses such as Microsoft 365, VMWare licenses, host backup, etc. This practice puts the client in a huge position of weakness and makes it difficult to disengage in the event they want to find new support, as it will require higher onboarding costs to change since the MSP holds all the keys.
- Hybrid providers offer much more flexibility where prospective businesses can choose services a la carte, full service, time and material basis, project based, and block time, etc. The primary goal is to incorporate a plan that makes the most sense from a cost and service delivery perspective.
- Hybrid providers are more flexible with remote and onsite support. Hybrid providers work collaboratively with their clients to determine their average monthly support needs, so in the end costs match to their average demand for support. These costs are transparent. Again, MSPs work in support costs into their contracts that are heavily padded by design to ensure the highest profit margin.
- Hybrid providers are staffed with more experienced IT engineers with enterprise level experience. From an hourly rate perspective, yes rates are higher, but experience pays for itself. Experience equals sound recommendations for future proofing a technology roadmap, efficient and correct remediation, and just better overall quality of service.
- Hybrid providers costs are typically lower than traditional MSPs –i.e., anywhere between 20% to 50%+ less for providing the same services using the same tool.
Final Thoughts
There has been a long running cottage industry for tech marketers targeting IT providers to embrace the MSP philosophy. These agencies hold bootcamps, workshops and webinars offering up a blueprint for minimizing human intervention, reducing overhead (payroll obligations), and leveraging what could be construed as misleading marketing materials and sales pitches with the goal of maximizing profits as priority. They position marketing and sales collateral to promote comprehensive wrap around services at a low cost and use other IT delivery models as foils. The result has been a permeation of MSPs and a growing gap in high quality IT services available to the small-medium business sector.
The long and short of this is to know whether your business is getting the most from your managed service provider. Use these caveats and contrasts as a gauge. If you find these points relevant, read through your MSP contract carefully, and don’t be afraid to ask your MSP tough questions. Survey your employees on what their experiences have been like with support. Finally, when contacting a prospective IT service partner, you’ll be well informed on what type of service provider will suite your best interests. The primary goal of a hybrid provider is not to maximize profit at the cost of quality of service, but rather the goal of a provider like Nims & Associates is to establish a mutual collaborative relationship with clients based on mutual trust and respect, with the focus being on delivering a high level of service that is appropriately scaled to the client’s needs.