The Value of Outsourcing vs. Building an Internal IT Department

In this article, former Suite3 owner and VP of Marketing and Communications, Dave DelVecchio, discusses the cost-effectiveness of leveraging an MSP for managed IT services.

Assessing Internal vs. Outsourced IT Costs

I was asked recently to provide validation for any cost-savings that could occur via outsourcing for MSP and MSSP services, rather than maintaining an internal department. 

I found that there's very little quantitative data available on the internet; however, looking simply at the cost of hiring internal IT resources can help to establish a baseline for discussion.

I decided to leverage AI in my analysis and asked Microsoft Copilot "how much in w2 earnings will it cost a company with 500 employees to fully staff an IT department?"

Its reply was as follows:

"To estimate the W2 earnings cost for a company with 500 employees to fully staff an IT department, we can use the average IT resource to staff size ratio and the average salary for IT positions. Based on the ratio of 1 IT staff to 25 employees, a company with 500 employees would need approximately 20 IT staff members.

If we consider the average salary for a Network Administrator as a reference point, which is around $65,207 per year, we can calculate the total cost as follows:

• Total W2 Earnings Cost = Number of IT Staff X Average Salary
• Total W2 Earnings Cost = 20 X $65,207
• Total W2 Earnings Cost = $1,304,140
  

This is a simplified calculation, and the actual cost could be higher when considering other roles within the IT department that may command higher salaries, such as IT managers, security specialists, or software developers.

Additionally, this figure does not include other costs such as benefits, taxes, training, and equipment which can significantly increase the overall expenditure."

The Value of Managed IT Services

The value of managed services that can provide for an annual budget of $1,304,140 is staggering.

In short, this works out to an "all-in-seat-price" of $217 per employee per month, and that would fund outsourcing most, if not all, IT services.

This includes many software subscriptions, cybersecurity tools, risk advisory services, and more not included in the W2 earnings of the internal staff - not to mention employee benefits and overhead.

When combined with the added value of bringing a deep tech bench with specialized knowledge and skills that may be beyond the capabilities of an internal department, as well as the scalability to adapt to the changing needs of a business, 24/7 monitoring and support, and proactive maintenance to prevent issues before they arise, the advantages for businesses that choose to outsource their IT services is clear.