How much should IT companies charge per hour?

by | Apr/15/2009

“Mike, I pay my outsourced company $75 per hour – is that a good rate?”  This is a common question from executives.

The answer is simple: Hourly rates mean NOTHING.

I have seen $40/hour companies spend months resolving simple issues that they should have known how to fix in a moment. At the same time, those companies may sometimes fix problems quickly. I know when I had an IT services firm, we did everything possible to avoid the “paid by the hour” trap.  I strongly believe services should be based on ROI – Return on Investment.  If you pay someone 100 dollars and get 200 dollars of value in return, that is a great deal!

I found the “per hour” arrangement just frustrated my customers because they wanted – and deserved – to know estimates ahead of time of “how much will this upgrade/repair/installation/etc cost?”  I adopted a model like car repair houses use.  If you take a 2005 model into the shop for an oil change, the shop looks up the car in a book that lists the number of “units” the oil change is worth. The mechanic gets paid and you get billed based on those units – whether the mechanic spends all day long or 20 minutes. See if you can get your IT contracting companies to give you “set fees” not based on time.

Not everything in IT can be reduced to “set fees,” and I understand that.  You may be asking a firm to come in and clean up a mess that a prior IT professional created. At least get the outsourced IT firm to share in the risk by asking them to specify a “will not exceed” dollar amount and date. That way they are demonstrating their confidence in their ability.

Many of the IT problems in the world are solved by checking a box, patching some computer code, or changing a setting on some program. The first time any IT professional debugs a problem, it may take them hours. The next time they see the same problem, the fix may take less than one minute. The best IT companies have their IT professionals store “how they fixed a problem” in a central database so that each professional is not “reinventing the wheel” every time a problem shows up.  An IT professional who scratches their head saying, “I saw this problem before – what did I do to fix it?” is an IT professional who will save his or her clients time and money by taking notes. To save money outsourcing, find a company that has IT professionals that are both certified and experienced.