The fundamental advantage any managed service provider (MSP) has is that they can aggregate the total cost of delivering an IT service across multiple customers. In contrast, an internal IT organization needs to absorb the entire cost for every full-time IT employee they hire. When it comes time for MSPs to expand their scope of the services they provide, it only makes sense for them to focus those efforts on where internal IT organizations are experiencing the most financial pain. After all, if salaries are high in one specific area, it’s usually because demand for the skill set has increased at a time when the available supply is constrained.

A new report from Scout Exchange, a provider of a platform using in recruiting, predicts that this coming year cybersecurity engineers will be the highest-paying and most recruited job in IT, with an average salary of $140,000. Following close behind are: Systems Administrators (average salary: $131,000), IT Auditors (average salary: $130,000), Software Engineers (average salary: $127,000), Software Architects (average salary: $126,000).

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Of course, IT salaries vary widely by region, so the cost of hiring cybersecurity professionals in New York or London is a lot higher than in Cleveland or Lisbon. Most likely, MSPs will seek out the best talent available, which usually comes at a premium compared to what an internal IT organization would be willing to pay. Even if an MSP winds up hiring a cybersecurity engineer for $170,000, the cost of that salary comes down to $8,500 when split across 20 customers.

To ensure profitability, MSPs need to factor in additional costs that, for argument’s sake, might be slightly more than twice that salary of the cybersecurity engineer. That would be roughly $20,000 per customer, which is still significantly less than the $131,000 an internal IT organization would have to pay to hire a cybersecurity engineer full time. In theory, that leaves MSPs with a lot of room to negotiate pricing. The trap many MSPs fall into is that they start at the point at which they negotiate a service from what it costs them to deliver a service, rather than the cost of what it would require the customer to create an equivalent capability on their own.

The industry’s impact on MSP salary strategy

Of course, MSPs compete for business, which naturally puts downward pressure on what they can charge to deliver an IT service. However, if the cost of hiring IT talent is high, then that usually means the amount of IT talent in that area is limited. The more limited the IT talent pool, the less pressure there will be on pricing, simply because potential rivals will find it challenging to find, hire, and retain talent.

In effect, the success of any MSP is innately tied to how well they can grow and hire IT talent in segments where demand for that expertise is highest. As for customers that want to drive down pricing without regard for the quality of service being provided, they usually wind up being more trouble than they are worth.

Eventually IT automation, as well as various forms of artificial intelligence (AI), will serve to reduce the cost of delivering any IT service. However, there is always going to be a major gap between what it costs an MSP to deliver an IT service across its customer base and what any IT organization can afford on its own.

Savvy MSPs will not only identify areas where demand for IT expertise is most acute, they’ll also endeavor to make sure the services they provide in those key segments generate the highest margins the market has already signaled its willingness to bear.

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Photo: Andrey Popov / Shutterstock

Mike Vizard

Posted by Mike Vizard

Mike Vizard has covered IT for more than 25 years, and has edited or contributed to a number of tech publications including InfoWorld, eWeek, CRN, Baseline, ComputerWorld, TMCNet, and Digital Review. He currently blogs for IT Business Edge and contributes to CIOinsight, The Channel Insider, Programmableweb and Slashdot. Mike blogs about emerging cloud technology for Smarter MSP.

One Comment

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    Am a IT expert , I think IT is the best paying today.

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