“We’re spending how much on IT this year?” If you’ve ever found yourself asking this question in a budget meeting, you’re not alone. Technology spending often feels like a black hole – money goes in, but the value coming out isn’t always crystal clear.
That’s especially true when evaluating an outsourced IT service relationship. Unlike hiring an employee where the costs are straightforward, measuring the true return on your outsourced technology investment requires a more nuanced approach.
After working with dozens of companies transitioning to managed service providers, I’ve seen firsthand how the right measurement framework can transform a seemingly subjective expense into a demonstrable business asset.
Looking Beyond the Monthly Invoice
Most executives I consult with initially focus exclusively on the monthly service fee when evaluating their outsourced IT service provider. While that number matters, it’s just one small piece of the ROI equation.
The true financial impact comes from changes across multiple business dimensions:
- Operational efficiency gains
- Reduced risk exposure
- Team productivity improvements
- Strategic advantage creation
Let’s break down exactly how to measure each of these areas to calculate your true ROI.
Hard Cost Savings vs. Baseline
Labor Economics
The most obvious comparison is between your outsourced IT service fee and what you’d otherwise spend on internal staff. But don’t just compare salaries – include the full employment cost:
- Base compensation
- Benefits (typically 25-35% of salary)
- Training and certification (often $5,000+ annually per technical employee)
- Management overhead
- Recruitment and turnover expenses
A mid-sized business replacing three IT generalists with a comprehensive outsourced IT service agreement might save $120,000+ annually in direct labor costs alone.
Infrastructure Optimization
One often-overlooked benefit of working with an experienced provider is infrastructure right-sizing. I recently worked with a law firm that was running 15 servers on-premises when they really needed just five. Their outsourced IT service provider consolidated their infrastructure, saving them approximately:
- $45,000 in hardware replacement costs
- $12,000 annually in power and cooling
- $8,000 annually in licensing
These aren’t hypothetical numbers – they’re actual savings from their P&L statement.
Downtime Reduction Value
System outages cost money, plain and simple. According to Gartner research, the average cost of IT downtime is $5,600 per minute. While that figure varies widely by industry and business size, even small improvements in availability translate to substantial ROI.
To calculate this portion of your outsourced IT service ROI:
- Track average monthly downtime before and after outsourcing
- Calculate your specific hourly cost of downtime by examining:
- Lost employee productivity
- Direct revenue impact
- Customer satisfaction costs
- Multiply the reduction in downtime hours by your hourly cost
One manufacturing client reduced their monthly unplanned downtime from 4.5 hours to just 0.8 hours after six months with their new provider. With their downtime cost calculated at $15,000 per hour, this improvement alone represented over $55,000 monthly in recovered value.
Security Incident Economics
Data breaches and security incidents carry enormous costs, from remediation expenses to reputation damage. Working with an outsourced IT service that brings specialized security expertise often dramatically reduces both the frequency and severity of incidents.
Measure this by tracking:
- Number of security events before and after outsourcing
- Average remediation cost per incident
- Reduction in cyber insurance premiums (often substantial with a qualified provider)
One healthcare client I advised saw their annual security incident count drop from 12 to just 2 in their first year with a security-focused IT partner. Given their average remediation cost of $27,000 per incident, this represented approximately $270,000 in avoided expenses.
The Productivity Multiplier
Perhaps the most significant yet challenging ROI component to measure is the impact on your team’s productivity. When systems work reliably, employees spend less time dealing with technology hassles and more time on value-creating activities.
To quantify this:
- Survey employees on time lost to IT issues before and after outsourcing
- Multiply recovered hours by average loaded employee cost
- Apply a productivity conversion factor (typically 0.6-0.8) to account for how recovered time translates to actual output
A professional services firm I worked with documented an average weekly time savings of 1.2 hours per employee after implementing an outsourced IT service desk. With 85 employees at an average loaded cost of $65/hour, this represented approximately $345,000 in annual productivity recovery (even using a conservative 0.65 conversion factor).
Strategic Advantage Creation
Beyond cost savings, the right outsourced IT service partnership creates strategic advantages that directly impact revenue and competitive positioning. These benefits are harder to quantify but often more valuable in the long run.
Measure improvements in:
- Time-to-market for new initiatives
- Customer experience metrics
- Business agility indicators
Putting It All Together: Your ROI Dashboard
To maintain ongoing visibility into your outsourced IT service ROI, create a simple dashboard that tracks:
- Monthly service cost vs. baseline comparison
- Downtime metrics and associated value
- Security incident frequency and avoidance value
- Employee productivity impact
- Strategic initiative enablement
Review this quarterly to ensure your partnership continues delivering measurable value.
Beyond the Numbers
While ROI calculations are essential, don’t overlook qualitative benefits that don’t easily translate to dollars. The peace of mind that comes from knowing experts are handling your technology infrastructure carries real value for many business leaders I’ve worked with.
One CEO described it as “finally being able to sleep through the night without worrying about our systems.”
Making Adjustments
Not seeing the ROI you expected? The beauty of an outsourced IT service relationship is its adjustability. Rather than the sunk cost of an internal hire, you can typically modify service levels or even switch providers if necessary.
The key is maintaining clear metrics from the start so you can have data-driven conversations about performance and expectations.
By focusing on these comprehensive measurements rather than just the monthly invoice, you’ll gain a much clearer picture of whether your outsourced IT service partnership is truly delivering the return your business deserves.
