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Sometimes it makes sense for MSPs to contract out services.  Depending on your goals, going this route could you save time, resources, and money — but it isn’t for everybody.

Regarding contracting out services, it’s important to first note the following: There are differences between outsourcing and subcontracting.

Subcontracting is when you hire labor from outside your company (usually at an hourly rate). Basically, MSPs use subcontractors when there’s a need for additional labor and experience. Maybe you need specific expertise for a project or additional resources when your backlog is high.

Outsourcing, on the other hand, is when an MSP hires a company to provide a specific function. For example, MSPs could outsource their centralized services (e.g., RMM, backup, security) or their support desk. Unlike with subcontracting, outsourcing costs aren’t directly associated with hourly rates. This means you need to understand your current cost and results for the delivery areas in order to compare them to outsourcing.

Try to think of how you would outsource or subcontract based on five core service delivery areas — Professional Services, Centralized Services, Support, Technology Alignment, and a vCIO. Which of these functions would benefit from supplementing your resources?

Before making any decisions about contracting out, there are a couple of factors to consider first.

Think about customer experience

Customer experience is everything. Think about it: Are customers likely to return to your business after experiencing bad customer service? Probably not.

Even worse, they may share their poor experiences with social media followers, media outlets, and industry peers. Therefore, you should always pay close attention to who is interacting with your customers.

Employees can make or break your customer experience. Now, when you’re hiring candidates for your business, you can evaluate them. Typically, you review their resumes and interview them on the phone, in person, or both. Ultimately, you have the final say. That may not be true when you contract out services.

Ultimately, you need to be sure that you have control over the customer experience for any services you subcontract or outsource. This means that customer satisfaction surveys and interviews are critical so that you can catch changes in service levels before they impact your business in a broader sense.

Determine costs before contracting out

What else should you consider before contracting out services? Your costs, of course.

When it comes to labor, calculating your costs can be as simple as taking the hourly rate you pay for labor and comparing it to what the subcontractor is going to charge you if you decide to contract out services.

Before outsourcing services, determine how much it costs you to provide a centralized service. Then, compare how much it would cost you to outsource them. Would it be cheaper to contract out services or keep them internally? It’s a numbers game.

This could include your labor cost, as well as any displaced tool costs. Be sure you factor in labor to manage any outsourced relationship. All relationships require oversight to be successful.

For many MSPs, the labor shortage is a major constraint to growth and scale, so contracting out services is becoming more commonplace among IT providers.

If you’ve never contracted out services before, determine first what you’re looking to achieve by doing so. Then, if the numbers work in your favor and you’re okay with taking responsibility for the actions of the contracted parties, give contracting out a shot.

Photo: Andrei_R / Shutterstock

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Gary Pica

Posted by Gary Pica

Gary Pica is a pioneer in the managed services field. He is one of ChannelPro's 20 industry visionaries and MSP Mentor's most influential leaders. He has already built two top-performing MSPs. Today, Gary is the President of TruMethods, a training, peer, and accountability firm aimed at helping IT solution providers reach their full potential as MSPs and cloud providers. Gary shares the key ingredients that transformed his business and his life through his training process. Today, hundreds of IT providers around the world utilize the TruMethods business transformation framework.

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