When to use a Managed Service vs. Staffing/Employee
Managed vs. Staffed Solutions: Finding the Right Fit for Your Business
When considering outsourcing your accounting & finance functions, how do you determine if you should use a managed service or a staffed solution?
At Ballast, we once encountered a scenario where, after extensive discussions and a thorough evaluation of a prospective client's needs against our capabilities, we advised them to opt for a staffed solution rather than our managed services. This decision was not about our inability to meet their needs, but about recognizing that their hands-on management style, specific operational requirements, and budgetary needs necessitated a direct staffing approach. This example underscores the importance of understanding the distinct pros and cons of managed versus staffed solutions, ensuring that businesses make strategic decisions that align with their unique operational needs and management styles.
In this post, we’ll delve into the differences between managed services and staffed solutions, particularly in the realm of finance and accounting, to help you determine which option best fits your business’s objectives and operational style.
Introduction: The Decision Landscape
Every business, at some point, faces the decision of how to best handle its various functions, from IT and marketing to finance and human resources. Choosing between employing a managed service provider (MSP) and opting for a staffed solution is a fundamental decision that can significantly influence operational efficiency and business scalability.
Managed Services: This approach involves delegating entire business functions to an external organization. Managed service providers take full responsibility for managing specified business processes, delivering results through their expertise and systems without requiring day-to-day oversight from you.
Staffed Solutions: This model involves hiring individuals either on a temporary or permanent basis who will operate under your direct supervision, working alongside your existing teams to manage and execute tasks specific to your business needs.
Applying the Concepts to Finance and Accounting
When it comes to finance and accounting functions, the choice between managed and staffed solutions becomes particularly critical due to the complexity and importance of accurate financial management.
Experience and Expertise: Do you have a strong background in accounting and finance, or would you prefer to rely on specialists to manage these functions? Your level of expertise should influence your choice.
Management Capacity: Consider your willingness and capacity to manage additional employees. If you prefer not to increase your management responsibilities, a managed service might be more suitable, freeing you to focus on core business areas or higher-level functions.
Customization and Control: Evaluate the need for custom processes tailored to unique business aspects. A staffed solution might offer more flexibility in adjusting processes and outcomes according to specific business dynamics. Be careful to assume that your business case is more unique than the norms; business owners have a frequent bias toward feeling their needs are unlike anyone else’s!
Cost Considerations: Understanding Financial Implications
When deliberating between managed services and staffed solutions, one cannot overlook the cost aspects, which are pivotal in shaping your decision:
Managed Services: Typically, these services entail a higher gross profit margin, ranging from 40-60%. This not only covers the cost of skilled personnel but also accounts for comprehensive management, use of advanced tools and processes, and a low active-management experience for the client. Managed services are priced on the premise of scope risk, where the provider guarantees the delivery of services, pricing in the expected complexity or time required (particularly for fixed-fee arrangements), and assuming margin compression for cost overruns.
Staffed Solutions: These solutions usually work with lower gross profit margins, about 20-30%, reflecting the greater control and oversight the client holds over the process and personnel. The client is more involved in day-to-day management, which might reduce operational costs but increases the time investment required from the client. Staffed solutions are often priced at an hourly rate or fixed number of hours to guarantee an expected margin.
The distinction in costs highlights the risk and responsibility transfer from the client to the provider in managed services, contrasted with the direct control and potentially increased management burden in staffed solutions.
Here is some quick math on expected costs to highlight the differences between managed and staffed solutions: A managed solution costing $10,000 per month at a 40% likely has a resource costing $6,000. A staffed solution with the same resource seeking to achieve a 20% margin would charge $7,500. The $2,500 premium reflects the scope-risk that the MSP incurs for delivery, and what management pays for ‘peace of mind’ by not having to actively managed the resource. It also prices-in the overhead required to train the resources to be sufficiently skilled for scope completion.
A Real-World Example
Returning to our initial anecdote, the prospective client who sought Ballast’s expertise in finance and accounting demonstrated the need for a high degree of involvement and control over their financial processes. Despite appreciating the expertise offered by Ballast, they found that a staffed solution better suited their desire to directly manage the accounting operations. This level of control and direct oversight is something that is more typically achieved with in-house staff.
Making Strategic Decisions
Choosing the right type of service isn’t just about assessing current needs—it’s about aligning with your long-term business objectives:
Cost Considerations: Managed services can appear costlier upfront but often become cost-effective at scale due to their efficiency and scope.
Scalability: Managed services are designed to easily scale with your business growth, providing resources and expertise quickly as your business needs expand.
Flexibility: Staffed solutions provide the advantage of direct control and the ability to tailor services closely to specific business requirements.
Conclusion: Empowering Your Choice
As you navigate the decision between managed and staffed solutions for your finance and accounting needs, consider how each option aligns with your strategic goals and operational style. Whether you choose the comprehensive expertise of a managed service or the direct control offered by a staffed solution, the right decision is the one that integrates seamlessly with your vision for your business.
For further guidance or to discuss your specific needs, reach out to explore how we can help you optimize your business’s finance functions for better growth and efficiency.
