Cost per user
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@pmoncho said in Cost per user:
@scottalanmiller said in Cost per user:
Example... the biggest, richest companies like Wall St banks, big tech firms, hedge funds... spend something like 80% on IT because they know that IT drives profits.
I see what you are saying. They see it more as an investment vs cost.
Correct. Big, successful business don't do anything as a "cost", except those things purely required by law, they do everything as an investment. If it isn't an investment, they don't do it.
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Years ago (well, not that many years ago). There was an old rule of thumb around my town for IT budgets regarding "general business". It was basically this: Companies should spend 1 percent of their annual revenue on IT (Staff, Hardware, Software, external services).
Over thirty years in this industry has shown me that if a company does not spend 1% of annual revenue, they are most certainly in the "limping SMB" arena as Scott put it.
@scottalanmiller said in Cost per user:
...that kind of thinking would keep companies from becoming big. IT isn't to "keep companies running", it's a massive component of competitive advantage. Those that see IT purely as a requirement and a cost center are pretty much relegated to being limping SMBs.
If they spend over 1%, you can guess a couple of things: they value IT, and they are trying to be competitive.
I often find myself thinking "if I ever wanted to work for someone else (and give up all the "business owner" perks like 20 hour days and no family time) , the company would have to follow the 1% rule and have an annual revenue greater than 50 mil. I could have a nice salary, hire some young gurus and meet all of their IT requirements to keep them on top of the guy down the street."
Now, I know that wouldn't work in every case, but I could show you 400 companies today that are under the 1% rule, and are "limping SMBs".
We also have a few 100 mil customers that spend 5% on IT. I have to tell you, they are a blast to work for. (Even if we only get 1/3 of that 5% !)
When customers ask, and want me to shoot from the hip, I give them the 1% rule. The look on their face will tell you a lot about your future relationship!
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@JasGot said in Cost per user:
When customers ask, and want me to shoot from the hip, I give them the 1% rule. The look on their face will tell you a lot about your future relationship!
That number came from an actual formal study. I used to have a link to the source.
I've used that number many times as a minimum. If you are not looking to spend at least that on your IT infrastructure, I don't want your business.
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@JaredBusch said in Cost per user:
@JasGot said in Cost per user:
When customers ask, and want me to shoot from the hip, I give them the 1% rule. The look on their face will tell you a lot about your future relationship!
That number came from an actual formal study. I used to have a link to the source.
I've used that number many times as a minimum. If you are not looking to spend at least that on your IT infrastructure, I don't want your business.
I often wish I had the opportunity to do the same. Kudos to you for being able to. I would say most of our customer base is between .7 and .9 %
I do use that number to justify turning away business that I know will be more trouble than they are are worth. It helps me sleep at night.
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@JasGot said in Cost per user:
Over thirty years in this industry has shown me that if a company does not spend 1% of annual revenue, they are most certainly in the "limping SMB" arena as Scott put it.
heck yeah!
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@JasGot said in Cost per user:
If they spend over 1%, you can guess a couple of things: they value IT, and they are trying to be competitive
Good guideline.
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@JaredBusch said in Cost per user:
@JasGot said in Cost per user:
When customers ask, and want me to shoot from the hip, I give them the 1% rule. The look on their face will tell you a lot about your future relationship!
That number came from an actual formal study. I used to have a link to the source.
I've used that number many times as a minimum. If you are not looking to spend at least that on your IT infrastructure, I don't want your business.
Thanks @JasGot @JaredBusch
I will look around for that study and see if I can pull it up. May be a good starting point.
Do either of you happen to know if that would include IT salaries or basically just monthly costs with regards to equipment, software and so on?
My initial thought when I read the 1% is it would not include salaries but should include MRC's on SaaS, Software and new purchased IT related products.
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@pmoncho said in Cost per user:
Do either of you happen to know if that would include IT salaries or basically just monthly costs with regards to equipment, software and so on?
My initial thought when I read the 1% is it would not include salaries but should include MRC's on SaaS, Software and new purchased IT related products.Any budget should include salaries as otherwise it is meaningless. Salaries are both the highest portion of the cost, and are a key component in determining the rest of the cost (throw enough money at salaries, and you need almost no other money, throw no money at it, you need tons of other money.)
Example: A large team of highly skilled people can work around the clock keeping complex, but cheap, and older systems running. But a single, less experiences person will require new software, new hardware, and large vendor support contracts to support the same environment.
Take a 100 person company. With a huge IT staff budget, they can run on 10 year old hardware that is flaky, all open source products, hardly any server gear, manual labor for many tasks, etc. Hardware/software budget might be close to zero.
Same company with a first year junior tech running the show will probably need Windows across the board, and will be running new hardware everywhere, and need vendor supported products at every turn from desktops to servers to backups, etc.
So in the one case, IT budget might be around .1%. In the second it might be 8%. For the same environment, only variable changed is the salaries.
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The 1% number would generally include the staff cost, too, and of course all vendor support contracts. The problem that a lot of people will find is that doing a budget like this shows why an MSP is the only feasible way to approach SMB IT. Even a single full time staffer is often too much for the percentages.
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And a tiny business, say 2-5 users, has to spend a percentage higher than larger businesses. And enterprises can use scale to reduce the percentage.
At the extremes, take a one person, part time company. They need the same hardware, software, and support as a one person, full time company. If that one person works 20 hours a week instead of 40, their IT cost per hour is literally simply double.
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@scottalanmiller said in Cost per user:
The 1% number would generally include the staff cost, too, and of course all vendor support contracts. The problem that a lot of people will find is that doing a budget like this shows why an MSP is the only feasible way to approach SMB IT. Even a single full time staffer is often too much for the percentages.
After further research, it seems that vendor contracts, especially SaaS costs seem eat up most of the budget. Which does make sense as it seems we are in a software defined world.
You made this interesting statement "There is no Windows cost associated with AD, all of the Windows Server and CAL licensing was already required for their apps." in a different post.
That got me to thinking, If the company's main LOB app is Windows Only, does that give some "wiggle room" to the IT budget as the business is dictating the additional cost of Windows Server/CAL's verse choosing a SaaS or Linux app? (I'm guessing not really)
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@pmoncho said in Cost per user:
That got me to thinking, If the company's main LOB app is Windows Only, does that give some "wiggle room" to the IT budget as the business is dictating the additional cost of Windows Server/CAL's verse choosing a SaaS or Linux app? (I'm guessing not really)
I don't get what you mean by wiggle room in this context.
The budget doesn't care if it is Server + CALs or SaaS. You build the budget based on the business choice of platforms. If the business chooses Server + CALs, you build a budget to handle the appropriate acquisitions. If the business chooses SaaS, you build a budget to handle the appropriate acquisitions. See how that works?
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@JaredBusch said in Cost per user:
@pmoncho said in Cost per user:
That got me to thinking, If the company's main LOB app is Windows Only, does that give some "wiggle room" to the IT budget as the business is dictating the additional cost of Windows Server/CAL's verse choosing a SaaS or Linux app? (I'm guessing not really)
I don't get what you mean by wiggle room in this context.
The budget doesn't care if it is Server + CALs or SaaS. You build the budget based on the business choice of platforms. If the business chooses Server + CALs, you build a budget to handle the appropriate acquisitions. If the business chooses SaaS, you build a budget to handle the appropriate acquisitions. See how that works?
The water is much less muddier now.
I've never been in a budge situation so I am ignorant on the inner workings in different types of businesses (larger or smaller). I have always been in a, I state my case and reasons for X hardware or Y software and am told yes or no, situations.
Other IT folks I have spoken with at other places local to me (mostly medical offices/hospitals), have mention how they are given a fixed dollar amount and if Exec's wanted new projects, IT was told to fit within their current budget. Basically, they were not given the extra money for the C-level Execs shiny new hardware/software purchases. (Not the best management)
I am probably over thinking it.
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@pmoncho said in Cost per user:
@JaredBusch said in Cost per user:
@pmoncho said in Cost per user:
That got me to thinking, If the company's main LOB app is Windows Only, does that give some "wiggle room" to the IT budget as the business is dictating the additional cost of Windows Server/CAL's verse choosing a SaaS or Linux app? (I'm guessing not really)
I don't get what you mean by wiggle room in this context.
The budget doesn't care if it is Server + CALs or SaaS. You build the budget based on the business choice of platforms. If the business chooses Server + CALs, you build a budget to handle the appropriate acquisitions. If the business chooses SaaS, you build a budget to handle the appropriate acquisitions. See how that works?
The water is much less muddier now.
I've never been in a budge situation so I am ignorant on the inner workings in different types of businesses (larger or smaller). I have always been in a, I state my case and reasons for X hardware or Y software and am told yes or no, situations.
Other IT folks I have spoken with at other places local to me (mostly medical offices/hospitals), have mention how they are given a fixed dollar amount and if Exec's wanted new projects, IT was told to fit within their current budget. Basically, they were not given the extra money for the C-level Execs shiny new hardware/software purchases. (Not the best management)
I am probably over thinking it.
Like, many, I have been in those situations. But I refuse to accept them. I have always pushed back reality. I didn't always win.
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@pmoncho said in Cost per user:
After further research, it seems that vendor contracts, especially SaaS costs seem eat up most of the budget. Which does make sense as it seems we are in a software defined world.
It makes sense in the situation where SaaS and vendor support is the direction that the CIO has taken the company. That's a common way to go. But it's very much specific to the company and what they want.
And really, things should be driven the other way. How did someone choose these things without already knowing this budget? The tools necessary to make all of these decisions seem to be being generated by the decisions themselves.
It's more than the cart driving the horse, it's the cart going shopping for the horse.
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@pmoncho said in Cost per user:
You made this interesting statement "There is no Windows cost associated with AD, all of the Windows Server and CAL licensing was already required for their apps." in a different post.
That got me to thinking, If the company's main LOB app is Windows Only, does that give some "wiggle room" to the IT budget as the business is dictating the additional cost of Windows Server/CAL's verse choosing a SaaS or Linux app? (I'm guessing not really)Since AD isn't a factor, and all of the cost is created by the LOB app, that's your "locked" factor.
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@JaredBusch said in Cost per user:
The budget doesn't care if it is Server + CALs or SaaS. You build the budget based on the business choice of platforms.
Really, I'd reverse that. A company should have no choice of platforms except for what is dictated by the financials. Businesses are about making money, so what enables making the most money is how businesses should be choosing platforms. Not choosing platforms, then doing math to see how much money will be left.
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@pmoncho said in Cost per user:
I've never been in a budge situation
In reality, no one should be. Budgets are a huge failure in this context. Understanding "what things cost" is one thing. But making budgets is how SMB IT drives itself into the ground. It's a backwards approach. It doesn't consider what is good for the business but rather approaches things from a what the business can afford.
Consider in your personal life if every dinner out, every house, every car, every TV, all your clothes weren't chosen based on what you liked or what served your needs but rather was chosen based on how expensive it was and if you could manage to pay for it.
You'd have no money for good stuff that matters, and own a few terrible things that cost a lot.
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@pmoncho said in Cost per user:
Other IT folks I have spoken with at other places local to me (mostly medical offices/hospitals), have mention how they are given a fixed dollar amount
This is the worst possible scenario and shows why those kinds of businesses are often used of examples of total failure. This means that the execs who know nothing about finance or IT are making the decisions for both. Any qualified CIO and/or CFO should have stopped them immediately. This is the textbook example used all the time of how unskilled execs totally screw up and kill companies.
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@scottalanmiller said in Cost per user:
@JaredBusch said in Cost per user:
The budget doesn't care if it is Server + CALs or SaaS. You build the budget based on the business choice of platforms.
Really, I'd reverse that. A company should have no choice of platforms except for what is dictated by the financials. Businesses are about making money, so what enables making the most money is how businesses should be choosing platforms. Not choosing platforms, then doing math to see how much money will be left.
Except he is talking about departmental budgeting. Not overall company financials.
The company should decide on the solution, then the costs will be determined on ways to implement that decision.
That is what the budget gets created from.
