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Flaws in Business Plans of Remote IT Department?
Anonymous Tech Support asks: "I work for a small technical support company that is hired by local companies to manage networks, fix computers, and be the IT department in general. Last week I was working on a small network of 25+ computers. After a week of emotion and annoyances (long story), I have to ask the Slashdot community: How many of you are employees of small 'outsourced IT departments?' How much does your company charge per hour and how much do you make per hour? What sort of agreements do you have with your employer (non-compete etc.)?"
The company charges $65 per hour to regular clients and I make very little of that. It seems like the business model is faulty, pushing us low-level yet skilled employees to start a company and go-it alone. It also seems like outsourced IT departments cannot have employees that will not leave or be disgruntled unless they are either a) paid enough or b) given a stake in the company. Do any of you have experience in this? What sort of business models exist out there for the remote IT department?"
We acquired a company recently who had an outsourced arrangement ... and related to that I have since met a few other outsourcing companies. They all seem to have the same standard model ... monthly retainer with dubious stated hours with an unwritten promise that they will do "whatever it takes."
... not that there is anything wrong with that.
... although I have heard rumors of folks who do it for $75-100/hr in their retainer.
In practice, these folks try as hard as possible to stay to a fixed amount of hours and charge for change requests
We have seen $130-$150/hr
Ideally, someone would give a tiered labor rate based on the skillset (desktop, server, network, security, etc.)
Unless this company is in some Midwestern backwater where the cost of living is many times below the national average, trying to turn a profit doing IT support for $65 an hour is just nuts. I can't imagine how anyone could turn a profit at that rate, unless it involves paying employees peanuts and promising a chunk of the business that might turn into something valuable on the off-chance the company is bought out in some future IT boom.
Do yourself a favor and read some books about running a small business. Then start consulting on your own to clients with more money for at least $120 an hour.
... that you would get paid close to what you bring in to the company? That people never leave them with a bad taste in their mouth? That because you had a bad week the business model must be flawed?
The only real difference between working in an outsourcing IT company and working in a cube is guarenteed hours.
"I use a Mac because I'm just better than you are."
typically a company bills 2 to 3 times more. So if you are making $50/hour, then the company would bill $150/hour. This is to cover overhead, ( assuming you are an employee ), of paying you benifits, workmans comp, and all the other expenses that go along with running a business and having employees.
Only 'flamers' flame!
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I used to work for a similar consultancy specializing in Mac-based consulting.
We charged new/regular clients $135/hr and our "contract" clients $110/hr.
I typically made 25-35% of that based on total billing for the month.
At 65.00 per hour, you're looking at 2600 per week (40 hour week (likely more hours)). If you're company is putting in 10 hours per week maximum at that rate per 52 weeks, the company is spending only 33,800.00 per year which is a lot cheaper than the client hiring a full time IT staff. Even JR. IT helpdesk retards make more than that (at least over here in the east coast). It makes practical sense for a client of yours to pay as little as they can. You on the other hand (and I don't mean this as an insult) are an idiot for 1) not doing consulting on your own if you know that YOU YOURSELF can make this amount. For consulting, the lowest I go is $200 per hour 5 hour minimum. My skillsets include network design, security, analysis, penetration testing, security design, analysis, forensics, etc. I don't even bother with system adminstration stuff.
In my previous job, that was pretty much exactly what I did.
I was on ~£6(~$11)/hour, and my company was charging £65(~$120)/hour (even for driving-time).
It was a raw deal but it was the best I could get. I was a junior system support technician and it was my first job (and I had no decent qualifications), but I was still very skilled for my age. It should have gone up after I proved myself to be as skilled as the other employees on twice my wage...
If you are getting a raw deal, get the client details, quit, and offer your own service!
"Do yourself a favor and read some books about running a small business. Then start consulting on your own to clients with more money for at least $120 an hour."
Oh just take me! Here's my $120, and my employee's $120. And my kid's college fund! You're so wonderful! By the way. Who are you?
This happens to be a great business plan if you own the company. However, at the billing rates you're talking about, its unlikely that the regular worker in your company is benefitting much at all.
But the fact remains that this business plan has been used with varying degrees of success for many, many years. Some efforts are successful, some are flameouts...
I worked for many different companies like this in my early IT career. The last time I was did this for a job, my boss was paying me $13.25 and billing me at $90.00 or so. We were a fairly specialized provider of a particular field of IT support, and owned the market we were in. The owner needed myself and the other tech to justify her hardware sales, because she was selling commodity hardware at or above MSRP. (Go ahead, see if you can pull that off for a decade!) The engineers were good enough that clients payed more for hardware because they knew that when anything bad happened, it would get fixed and fast.
In fact, I left because one of the owners had just bought property on Nantucket after giving herself a $50,000 bonus (on top of salary and commission) and I got $2000 bucks and a drink. My leaving made them realize that they couldn't find people with my skillset and changed the company policy to reflect profit sharing and a host of other things.
However, your employer probably knows that he can (and undoubtedly will) be able to replace you with another adequate tech for the same amount (or less, as you get raises) and simply doesn't care.
Several of the companies I've worked for doing break-fix jobs had gobs of talent walk in and out of their shops, but simply didn't care. Guys I've worked with have ended up at important jobs running IT departments for huge companies or doing other similar things but started out building PC's or fixing them for $7.00 an hour in the nineties...
Remember that if you do your own consulting, if you pay taxes on that you'll lose a huge chunk of the hourly. Its tough to run your own business, especially finding new clients and getting enough clients to actually pay the rent *AND* food *AND* high speed internet. I did that for a year or so as well, and while it was fun for a while, it got old quick, especially during tax season when I had to fork a decent chunk of change for my accountant to get everything in order.
The good news is that your can likely learn as much as you want and actually start a career doing what you do now. Just don't plan on doing it where you are currently at...
You don't say if your small part of the $65/hr is counting any benefits they may or may not be offering you. You also don't say how much you're billable, so you might want to take that into account. I've been following some small business "managed IT" shops talk bout being happy to get 75% billable out of their consultants, so you might think of that as a benchmark.
This will not endear me to the general Slashdot community, but if you search Yahoo!Groups for some of the MS Small Business Server communities, in particular the smallbizit or "managed services" group, you'll find small business owners discussing the ins and outs of making a business work - including profitability and if you do some archive searchs what they're offering for benefits. If you participate in the OS religious wars, you may want to skip it, but if you can look past that, there's some value. A lot of the discussion is in moving a business from "break/fix" pricing to "managed services." You might Google "The SBS Show" which is a podcast talking about a lot of these issues, interviewing different business owners.
When I quit working for an employer to open my own firm, my dissatisfaction was based on the fact that IT professionals had a fixed ceiling on earnings. I have the opportunity in my company for employees to get compensated for sales as well.
That way I don't have to give away my company, and the income to those who bring the clients in is much higher than those who get assigned a client.
Leonid S. Knyshov
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"My skillsets include network design, security, analysis, penetration testing, security design, analysis, forensics, etc. I don't even bother with system adminstration stuff."
Wow! You do a lot of analysis, then penetrate, then you get to look at the left-overs. And you're a bouncer as well. You have the best job!
I was getting 25-30/hour for doing this kind of work. They were probably billing me out at around $100/hour. More recently I worked on a short project at a school system, literally logging into hundreds of servers and doing a few quick things with each one, as a one off for a company paying me $30/hour and I ended up with an email of the contract by accident and it said I was being billed at $107/hr.
I work for a company that does much of what you're describing. Here's what I can tell you about how we do things here.
We have two tiers, one for how frequently a client promises to let us visit (larger clients need us around more often so we charge them less if they guarantee the business, otherwise we charge more) and one for the skills of the person they want (MCSEs go for about 15% more than an MCSA, for example, and programmers go for more than MCSEs). Throw in extra charges for weekends and after hours rates, and you're looking at prices anywhere from about $70/hour (minimum once a week visit, not an MCSE) to something like $200/hour (after hours programming rate for a client who doesn't promise any business).
There are two minor problems with this model. The first is that the most experienced people are sent to the customers that pay the most money to the company, which, as you can guess, are often the ones paying the least per-hour, or very close to it. This means that, as you get more experienced, the smaller your 'pie' gets. The flipside, of course, is that, since new hires and less experienced staff often have fewer regular customers, they have more holes in their schedule and are often the first to go to less regular (i.e. higher per-hour) customers. The good news about this is that the less regular customers usually have smaller, easier to manage networks, so it still works out in the long run. The second problem is that, well, the pie just can't get very big - assuming you bump right up against that 2x salary limit (which you won't), you're looking at hypothetical max earnings in the $30-$40/hour range, which isn't bad, but isn't great (up to $80k/year - suffice it to say, nobody where I work makes within $20k/year of this, at least that I'm aware of).
Now, where I work, we have the advantage of a relatively low cost of living; whereas we can get halfway qualified people to work for us for a couple of years for under $50k/year where we do business, there's no way we could pull that off in, say, San Francisco. If we were doing business in a large urban area, I'd suspect our rates would be double what I'm listing here.
We do have a mix of customers. Some of them are mellow, easygoing, and more than happy to let us do our jobs so long as their equipment works, their problems are handled, and everything is smooth. Many times, they're willing to even pay us to deal with ordering print toner, to say nothing of installing it. However, there are other customers on a much tigher budget that often use the minimum monthly hours in their service contract as a maximum number of hours they'll let us on-site for. This, too, isn't so bad, as long as they don't expect us to be able to treat them as well as our more easygoing (and easy spending) clients - there's just only so much you can do in four hours a month, y'know?
The real kicker, of course, is the non-compete agreement that not only we have to sign but our customers have to agree to before they sign up with us. In short, all of the employees legally promise to not compete with the company for a set period of time after leaving (i.e. having ownership of any company that does tech work) and the customers promise to not hire former employees for a set amount of time to handle tech work unless they're willing to pay a buyout to compensate the company for the loss. In short, if I wanted to go into independent consulting, I'd have to move about 100 miles away and promise to never do business where I currently live. Nice, huh?
The local tech companies around here usually laugh at my rates - $60/hr for small businesses and $40/hr for residential.
While they're laughing I've been raking it in for almost 4 years now. And I live in Fairfax County, one of the richest counties in the country. So I'm in the D.C. metro area, Northern Virginia, and I'm charging peanuts. But I work about 100 hours a week, not all billable, and my one man operation generates a low six figure profit.
I made enough my first 3 years to put $150K down on a $520K townhouse (yeah, that's right, a townhouse - how's that for a high cost of living). I currently remotely monitor 14 servers but I only have a few service contracts. About 90% of my revenue comes from my hourly work. So it's not always how much you charge - it's how hard you work.
Of course, this is all a big turn around from the 25K/year system administrator job I slaved at when I graduated from college in 2002. Don't work for another company, work for yourself. The overhead in this type of industry is amazingly low - all you need is a vehicle and an advertising budget in the $2K price range.
I work for a small computer shop that has moved into doing PC repairs, and now business support. We have had similar issues as you, mainly because we go and set up an SBS server and the one IT guy the client company employs wrecks it after a week, but anyway...
We charge £39 + VAT per hour, but are looking to increase this a bit soon. We also have "day rates", which is basically 8x39 but includes any overtime we do that day. We also have out-of-hours rates, which are £65 + VAT per hour. Core hours are 9am to 5.30pm.
We usually do things on-site, but of course use remote admin as well. Minor issues we do remotely for free, which keeps us in everyones good books. But we do of course charge if there are many major problems, or if we have to spend time fixing other people's mistakes.
Generally, it's a question of figuring out each client. If they are a pain in the ass, always calling you and always making big demands, charge them as such. If they are understanding and cooperative, maybe do them a few discounts or freebies and build up a good relationship. Good IT helps them build their business, which in turn means they need more IT, which means more work for you. Also, if they recommend you to other local companies...
We don't have any kind of no-compete clause, in fact I think those sorts of things are illegal in the UK anyway. I've never seen one, anyway. In fact, a few years ago one of our guys left to set up his own support company, but we came to a gentlemens agreement not to step on each others toes. It's worked well so far, we even get some repair and supply work from him.
const int one = 65536; (Silvermoon, Texture.cs)
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I have been on both sides and visited with others on both sides. Any trade where the cost of entering the field (barriers to entry) are low see the same thing. I've seen mechanics, electricians and plumbers all hang out their own shingle.
I have also audited change order costs for contract work, including employee costs.
Consider this:
Basic 40 hrs/wk = 2080 hrs/yr
Assuming independent (sole Proprietor), simple basic in US
As an independent you will be lucky to get paid for 50% of that. Employee get paid for all of that, even when sitting around
In US independent pays ~14% SS & Medicare. Employee ~7%, Company covers ~7%
Average Employee costs company ~30% OVER pay rate for SS, Insurance (Unemploy & Group Medical), Vacation & Sick Leave.
Independent has no leave, no unemployment, pays own individual medical.
Employer provides specialized tools. Independent provides them for self.
As independent other 50% of time spent worrying about paperwork, sales, marketing. All the necessary things that don't add a cent to your checkbook.
Employee just has to get their time sheet in.
I've seen lots of people jump between the two. Boom times go independent and get on the gravy train. Bad times grab the paycheck and let the boss worry about keeping the doors open.
It appears that your question is "Can I make more $$ going solo, etc?" I think a better question is "Are you fairly compensated based on the job description and your skills, attitude and contribution?"
If you start a solo or partnership business then your job description has expanded beyond IT Technician to small business owner and all that entails. You should hope/expect to get greater compensation for taking on greater risks and more responsibility in a role that requires a broader range of skills. It can, of course, take a few years to get the business to a point where the financial rewards (or even parity) are a reality and there is that small problem of most small businesses failing.
Don't start your own business because you aren't be compensated fairly, there are FAR easier ways to solve that problem: change employers, specialize in your field, get additional training, go back to school, renogiate, ask your boss how you can be become more valuable to her and therefore earn more income, in short figure out what the key employees have/know/do that make them key and make yourself key. If you do this then you will find the right compensation. Do start your own business because you think you can do a better job, have the desire to work for yourself, want more flexibility and can live with the increased risk and uncertainty; or any other reason that says "I want my own business". This is very different from "I want more money."
I ran IT for a 50 person software company, after it was purchased I ran my own solo IT services firm for 3 years. I recently merged my successful practice with one of my clients that offers other types of professional services. I've seen all 3 sides of the coin and they are different jobs with different risks, rewards, required skill sets, career paths as well as compensation. If you base your decision mainly on compensation then you are missing 80% of the picture.
I don't want to descourage you from started out on your own, just do it with your eyes open and fully understanding that it's completely different from what (I assume) you are currently doing. Good luck!
What's stopping you?
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My company charges a rate of $100-125/hour in our market (small blue-collar city in Pacific NW), depending on the experience of the tech. Most of our work is "time & materials" -- we do have a few clients who have us on a retainer for a specified number of hours per month. Most of the time involved is for weekly checkup & maintenance. Over that is T&M.
As the most experienced tech in my company (nine employees, of which 4 are technical and 2 are part-time developers), I am paid ~$45K/yr which is reasonable around here. Oh, sure, it would be nice to be paid more, but I have enough left over to support a house payment, car payment, basic living expenses, and have a little for charitable donations and discretionary spending. I am provided medical insurance and some limited retirement benefits.
We find that we need to maintain at least five billable hours billable per day to cover wages, benefits, and overhead.
A couple of things to consider when setting your rates: you want them low enough that you can keep busy (don't price yourself out of the market), but high enough to a) make a profit and b) make yourself unattractive to the people who whine and complain about every bill you send them.
Give nothing away. If you are there for an hour and a half, don't bill for an hour. If you told them you'd charge $125/hour, then don't drop it to $75. Save that for the disputed bill -- when they call and complain you can review the invoice and discuss why you are charging for X; you will at this point have some negotiation room and can give the customer credit (notice I said credit, not a discount). If you wipe out all your profit before you send the bill, you'll go broke in a hurry. Only in extreme cases should you give a discount.
Establish a minimum charge. We charge minimum 3/4 hour for onsite service, even if we're only there for 15 minutes. To be fair, I often try to fill up the 3/4 hour with other IT tasks that might otherwise be overlooked, like cleaning up a hard drive. We bill in 15 minute increments. For remote or telephone service, we'll generally waive the minimum charge. People get cranky when you charge $90 for a 5 minute phone call.
As a provider of IT services to small business, you must be very versatile (no specialization!) yet very knowledgable (specialize in everything!). Your employees must be able to think on their feet, and come up with creative solutions to strange problems. Things like restoring an Active Directory server from two corrupt backups (yes, I've done it - I don't remember how). Or hex editing a binary metafile to restore an Exchange database (done that, too).
No, I'm not going to give a plug for my company here. That would be shameless. Besides, I don't want you calling me to rebuild your Active Directory. You can't pay me enough to do that again.
(By the way, it was on New Year's Day when I restored the ADS server. I was on tech support for 8 hours with Microsoft, actually got escalated to an engineer in Redmond. Finally they said that it was unresolvable and that I'd have to rebuild the entire domain -- about 250 users -- from scratch. The backup tapes were not managed properly. The System State backup was spanning two tapes, and there wasn't a complete set: there was the first tape of one backup and the second tape of another backup. Enough data was on these partial backups to restore the domain.)
Give me my freedom, and I'll take care of my own security, thank you.
1. Outsource your computers to a remote IT department
2. ???
3. PROFIT!