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Factors that Determine the Cost of Small Business IT Systems

Factors that Determine the Cost of Small Business IT Systems

Budgeting for information technology (IT) services can be a challenge for small businesses. While many people may imagine an IT department as a team of nerds answering computer questions, what IT system looks like differs from business to business. In general, IT systems can include: providing employee technical support for devices (desktop computers, laptops, and mobile phones), securely storing data in the cloud, monitoring devices for security threats, upgrading devices as needed, maintaining servers, implementing new software and training employees to use it. The level of IT support that a small business needs depends on the nature of the data they are storing, the number of employees they have, and their need for software upgrades.

To support the critical tasks of IT systems, small businesses can choose from a variety of IT services solutions. Cloud storage solutions from Amazon and Microsoft may be sufficient for a small business with in-house technical know-how. However, some small businesses may require internal servers and support for employee devices. These businesses can choose to hire an in-house IT specialist or outsource IT services to another company. In-house IT specialists are typically hired on salary at a rate of $46,000 USD per year, according to PayScale. In contrast, IT services outsourcing can be purchased on an as-needed basis and expand as the company’s needs grow. Depending on the company’s needs, an in-house specialist may be cheaper or more expensive than outsourcing IT tasks. Although the appropriate choice depends on the business case, there are some benefits to outsourcing.

Benefits of IT Services Outsourcing

Companies that choose to outsource IT services may benefit from being able to redirect resources. Maintaining security and data is a full-time job for at least one employee at a small business. If a company chooses to outsource, that employee or department can be redirected to develop software solutions. As the Massage Envy Spa CIO explains in Forbes, outsourcing the company’s IT systems allowed his group to implement new processes, like massage sharing. The team was able to add value to the customer instead of simply chasing down IT issues. This resource allocation can also help smaller companies. A single internal developer that spends his time installing firewalls may instead be able to build value-adding code if relieved of IT systems duties.

IT services outsourcing also puts a whole company of experts at a small business’s disposal. Although small businesses should choose their IT services solutions provider with care, most outsourced or “managed” IT providers can provide more expertise than a single in-house person.

Managed IT systems can also scale with a growing small business more easily than an in-house IT department. As more support is needed, the business can purchase more customer support hours from the IT solutions provider. Increasing the number of support hours is typically simpler than going through the process of hiring and training an IT department.

While there are many benefits to IT services outsourcing, small businesses should be aware of the potential costs associated with this essential service. The budget should include funding for two different types of services, recurring and one-time. Recurring costs are expenses that occur on a regular basis, like maintaining firewalls. One-time costs only occur once. An example is the setup of Microsoft Office 365. Once it is set up for the small business, no more costs are incurred. Both types of costs should be included in the budget for outsourcing IT services.

Recurring IT Systems Costs

Determining the monthly IT services solutions cost for a small business is a bit more complicated than purchasing a monthly subscription. Each business has unique requirements, and the IT service is matched to the business’s needs. However, most IT services providers take into account at least three items:

  • Number of Devices (Desktops, Laptop, Mobile Phones, and Tablets)
  • Number of Servers
  • Amount of Data to be Stored

To determine the cost, IT service providers estimate the number of support hours required for each item. A company that has more devices is likely to incur more support hours than a company with fewer devices. One IT systems calculator estimates the cost of one device or server to be 25 hours per year. IT services providers often charge upward of $100 per hour. Therefore, small businesses can estimate the minimum cost of device support per year using the following formula.

(Number of Devices + Number of Servers) * 25 support hours per year * $100/hr

Costs may be higher than this estimate because it depends on how much the IT solutions provider charges per service hour. However, it is likely that device support will be the bulk of the recurring costs. As the cost of storage data securely shrinks, the amount of data to be stored affects the price less. Backing up 500 GB may cost only $100 per year! However, storing more data will cost more money. Storing and backing up 10,000 GB may be more like $2500 per year. However, this number is still often much less than the device support. Supporting one desktop will cost the same as storing and maintaining 10,000 GB ($2500 per year). As a general rule, small businesses can estimate the yearly cost of cloud storage using the following formula.

(Amount of Data to be Stored in GB) / 5

Most companies that choose to use outsourced IT system services spend between $1000 and $9000 per month. The number of employees and the need for servers are the main drivers of these recurring costs. In comparison, an in-house IT person will cost about $3800 per month. However, this employee will also receive company benefits and likely be limited to 40 hours per week. For many companies, it is cheaper and easier to outsource the recurring IT costs.

One Time IT Systems Costs

Although recurring costs are more likely to impact the budget than one-time costs, small businesses should account for one-time expenses. Completing the initial setup of the programs that the company needs can be a large expense. At the very least, small businesses should budget for setting up email accounts, a software program to create and share documents and accounting software, like Quicken. Sometimes setup can be completed by the small business owner. However, outsourcing can be a better use of resources. Installation and setup can be time intensive. Estimates for outsourcing these costs should include at least 25 customer support hours at a cost of $100 per hour for a total of $2500 minimum. However, small businesses should contact an IT solutions provider for a quote for their specific software setup needs.

Methods of Payment

Small businesses have two common means of purchasing IT service support hours from a provider: buy as-needed or in bulk. As an example of buying as-needed, if an employee needs two hours of help for a computer setup, the company pays for two hours. This can be a great option if the small business is testing out an IT services provider or learning its IT needs. However, it can also be a more expensive option. Purchasing as-needed is typically more expensive per hour than purchasing in bulk. For example, it may cost $150 per hour for customer support hours as needed but only $100 per hour if 20 hours minimum are purchased. The reduced cost per hour is the benefit of buying in bulk. However, if a small business is not sure about the IT provider or the number of hours required, these bulk purchases may not be refunded if not used.

Small businesses should decide how many hours to purchase (and using what method) based upon company needs and the relationship with the IT services provider.

IT system services are essential to many small businesses. Fortunately, storing and maintaining data is a key component that can be easily outsourced to a trusted IT solutions provider. These providers can also support employee questions regarding software. For many small businesses, outsourcing the IT department relieves the burden from internal employees; they can focus on value-adding tasks instead of maintenance.

However, small businesses should take the cost of services into account. Much of the cost is due to recurring support hours, which are used to answer employee questions and maintain devices and data. These costs can range from $1000 to $9000 per month, depending on the size of the small business. Budgets should also allocate additional funding for one-time IT services, such as the installation and setup of a new email program. The final cost is dependent on the business. However, some businesses can save on IT service provider costs by purchasing support hours in bulk. Outsourcing IT systems requires careful budgeting, but it has many advantages.

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Patrick Hogan

Patrick Hogan

Patrick is a Co-Founder & Chief Executive Officer of Tenfold.

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