Friday, 26 May 2017 19:12

The True Cost of IT

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Do you understand the true cost of IT?


To most companies the “cost of IT” is a dirty phrase. IT costs are often looked at in a poor light. This is almost always the case when companies have traditional break/fix agreements with their IT provider and every time a tech is onsite all the customer hears is the proverbial cash register ringing with every passing minute. That paradigm has shifted by those companies who hire Managed Service companies. In today’s office environment, IT is more necessary than ever. Today’s business is driven by technology, even the traditional cash register has been replaced in most cases by a computer-driven solution.

If you are a CEO, CFO, or owner of a small business, you are watching every nickel that gets spent, especially in this economy. You are constantly looking at the cost of each computer, server, network switch, firewall, software, and support cost. And you should! But the cost of IT goes beyond all of these things. Companies have to take into account efficiency and productivity of their employees, customer satisfaction, and your sales revenue. These are often items that don’t make the equation when we think about the cost of IT. The true cost of IT comes into play when your network goes down. This is when the real money starts to add up. This cost is in the form of lost productivity, and revenue. To the small business of ten people, having one person down is a 10% loss in productivity, five people down and you are running at half productivity. And that doesn’t even account for the time your employees waste on Facebook….

So let’s take a look at some hard numbers to paint a vivid picture about the true cost of IT. If you are a ten person company with a forty hour work week, an annual sales revenue of $2,000,000.00 and have two people who are hard down for three hours, you just lost $577.00 in revenue. Then you have to add the money you lost on payroll, etc. A total outage for three hours would cost you $2,885.00 in lost revenue, and that’s no scare tactic, just simple math. In most cases, companies don’t even have to have a hard down event to have an impact on your revenue. All it takes is your network not running at its optimum, which is the case for most companies, to have a major impact on your revenue ( Here’s the formula for you to figure your costs for yourself: Lost Revenue = (GR/TH) X I X H. GR= Gross Yearly Revenue, TH= Total yearly business hours, I = Percentage of impact, H= Hours of the outage.) Now, on top of that, add your payment to your IT company/person. If we use the cost of IT from the S.F. Bay Area average that’s an addition of $125.00\hr in support costs. In our many years’ experience, we have found that the typical ten person office with one server will have an average break/fix bill of $2,300.00 monthly barring any major issues that require additional work. That would give you an average yearly IT cost of $27,600.00. When asking our clients during our initial interview, they report an average of five service interruptions a year lasting three hours. That’s an addition of $1,875.00 per year, putting their IT payments at $29,475.00 yearly. So let’s put these numbers together. If you take our average of five outages for three hours at $2885.00 in lost revenue, that’s a loss of $14,425.00. When we add the payments to the IT Company we get a total of $43,900.00 as your total cost of IT. Conversely, the average Managed Service bill for the same customer is $1,697.50 a month, or $20,370.00 a year, flat. Because of the nature of Managed Services, down time is either eliminated or greatly reduced to provider based outages such as ATT or other vendors. On average our customers see a total of 4.5 hours of downtime a YEAR. If we take our Managed Service cost and add it to the lost revenue, we come up with a total cost for IT of $24,696.93. That’s a savings of 44% yearly.


In the traditional break/fix agreement both the customer and the provider are on the losing side. The customer because they end up getting charged by the minute for their service, and the IT provider has no real incentive to make sure your network is running optimum because that’s how they make their money. And the provider loses because they are looked at negatively as a money pit, sometimes deservedly so.

Once companies and service providers mature in how they view IT services and the value that GOOD IT brings, moving away from the traditional break/fix model makes sense, and the move to Managed Services is elementary. A seasoned Managed Service Provider will provide a few packages for their clients, the most valued one being the “Unlimited” or “Platinum” package. While some providers still put boundaries around their Unlimited package, others (like IS Works) offer a true unlimited package for one flat rate. The benefit of Managed Services is seen by both the customer and provider. It’s in the provider’s best interest to keep the customers network running smoothly, with minimal downtime. The customer receives the benefit of the provider working hard to prevent service outages and has plans in place to restore service quickly in the event that an outage cannot be prevented.


Once you’ve plugged in your numbers and see the TRUE cost of your IT, please give us a call and we’ll be happy to provide a Network Health audit for all of your computers and servers; a $497.00 value, at no cost to you. Call now (408)369-4323

Read 632 times Last modified on Tuesday, 24 September 2019 19:02
Rees Roberts

Rees Roberts
President and CEO
Corporate West Computer Systems, Inc.

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