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Time and materials based outsourced IT billing structures are inherently bad for business. Comprehensive fixed fee IT outsourcing packages are the wave of the future.

By:Christine Fettinger

Time and materials based outsourced IT billing structures are inherently bad for business. Comprehensive fixed fee IT outsourcing packages are the wave of the future. Why pay more for downtime, when you can pay less for uptime? Today, businesses commonly undervalue their Information Technology in regards to their competitive advantage and long term profitability. Businesses even more commonly underestimate that this competitive advantage and profitability depends on the smooth operations of their IT. Without smooth operations of your business’s IT assets, IT merely becomes an exhaustive expense.

Traditionally, ITSC’s (IT Service Companies) typically provide hourly labor structured billing options (time and materials) for their clients. Billing costs increase when labor volume increases (more issues/disruptions equals more costs). When issues arise, ITSC’s billing volume increases, which unpredictably increases direct costs. So, there is an innate financial incentive for ITSC’s to spend more time if they bill you on an hourly basis. Most ITSC’s try extremely hard to address this dilemma in an ethical manner, yet still, why would any smart business person intentionally choose to incentivize someone to instinctively bill them more when there are other structural alternatives that would provide them with a significantly higher ROI? Most ITSC’s don’t have the infrastructure to support fixed fee service packages, or they merely avoid advising their clients to move to the model because of the possible reduction in income on a client to client basis. Not only does the fixed fee model provide a “no surprises” monthly budget, it dramatically increases value for each client. At the same time, fixed fee packages allow the ITSC to improve performance and stability over their entire client base.

For cost containment, ITSC’s that use time and materials billing structures are commonly controlled/managed by their clients to reactively maintain their IT. Not only does direct labor volume increase costs when IT is not proactively monitored, managed, and maintained, but even greater indirect costs ensue from pricey operational downtime and/or productivity interference. These indirect costs are less quantifiable, yet much more expensive to all business’s overall profitability.

Break/fix, troubleshooting, and/or catastrophic downtime from data and application recoveries are commonly due to reactive time and materials relationships between you and your ITSC. If a server fails (and all servers will fail at some point) and your employees are without applications, files, internet, and/or email for an extended period of time, you probably haven’t budgeted to proactively maintain that server properly. Would you rather pay an ITSC $5,000 to recover a failed server while you lose 10x that total due to operational downtime, or would you rather pay an ITSC $500 per month to avoid the situation?

Aside from sales, operational effectiveness is usually the most important indicator of a healthy business. A stable and healthy IT infrastructure is essential to operating effectively with today’s high demand computing business requirements. Unfortunately, most businesses have been classically conditioned by a time and materials billing structure with an ITSC that doesn’t provide a fixed rate service offering, or they merely have an under-skilled and/or over-worked network administrator who typically struggles to continue to put out fires, and rarely has the time to provide the important proactive IT approach necessary for operational effectiveness.

Every smart business person should ask their ITSC about the fixed fee service packages!