Compare Cost of Outsourced IT vs In-house IT

One of the most common questions asked is what is more expensive, running your IT in-house or outsourcing. Although I think this is completely the wrong question, I am going to try help answer the question and provide a basic cost calculator.

Before I get into answering the question, I want to explain why I think its the wrong question. Cost is always an important factor but should almost never be the leading factor. Its far more important to way up the requirements of the business and compare how in-house or outsourced could best meet those requirements, taking into account the cost Factors as just one component.

For example, outsourcing has many benefits apart from possible cost saving (hint, I may have just given away the answer) Outsourcing generally provides access to better skills, more recourses and flexibility just to mention a few. Not to mention often the best solution is actually a combination of in-house working with outsourced IT and sharing the roles/responsibilities, this is often referred to as co-managed IT.

Ok let’s dig into the cost factor. For my example we going to look at fully outsourced vs full in-house to keep things simple. If you would like me to create a co-managed price calculator let me know. We also going to assume that both the in-house and outsourced IT team will use the same Technology stack and provide the exact same services.

Note: Outsourced IT Companies are often able to provide the software & licenses at reduced pricing as they buy in bulk and have preferential agreements in place with the suppliers. We generally see companies under 500 users who go direct typically pay 20% or higher margins on their technology stack.

Calculator Assumptions

• All Prices are based on the South African market and calculated in ZAR.
• Staff costs are based on industry average Cost to Company values.
• Technology costs include all the necessary technology to provide minimum standard of care for any business and what Techtron includes by default in their packages.
• All once off project or specialised engineering costs have been excluded.
• Microsoft 365 License costs have been excluded for simplicity sake.

Recommended Rules for Using the Calculator

We recommend inputting the figures from the table below into the calculator based on industry norms and what we have seen.

Additional Notes

The reason smaller teams generally don’t make use of Level 1 engineers is because they need supervision by a more senior engineer and there generally is not enough work for two engineers. In some cases, you might have a junior person filling two roles like basic IT support and doing deliveries and collections for example, or some other admin role.

In companies under 50 users its extremely rare to have a dedicated IT Manager, you are more likely to find one of the managers or execrative team take responsibility to for IT as part of their other duties.

The cost calculator ignores all the additional costs associated to hiring, firing, training and managing internal people, etc.

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Outsourced IT Cost Calculator

Now use the below calculator to compare the cost of outsourcing your IT. Take note the below calculator includes your whole technology stack including all licenses support etc. This is a more premium outsourced offering which includes unlimited onsite support as you would get with an in-house IT team.

Conclusion

Besides the many benefits of outsourcing your IT, it is almost always more cost effective to outsource compared to building an in-house IT team for companies less than 100 users.

For companies between 100 to 2500 users we generally recommend a hybrid approach with an in-house IT team working closely with an outsourced IT company, with clear roles and responsibilities.

For companies larger than 2500 users it may well benefit from having almost all your IT in-house except for one or two specific services such as an outsourced SOC for example.

I hope this very high-level comparison will help you make better decisions about your IT strategy. Please reach out to Techtron if you would like to discuss further or have any questions.