Back to Blog
Managed Service Providers (MSPs) are increasingly vital in today’s competitive landscape. They offer organisations a pathway to enhance operational efficiency, access to specialised expertise, and better resource allocation across multiple business functions.
The growing importance of MSPs is reflected in their market’s rapid expansion, with valuations rising from approximately $255.86 billion in 2022 to a projected $671.14 billion by 2030—a compound annual growth rate (CAGR) of 13.1%.
What do these numbers mean? It’s simple—MSPs are becoming more valuable over time. The MSP industry is rapidly growing, almost tripling in value between 2022 and 2030. This shows businesses rely more on these companies to manage their IT needs.
However, not all MSPs deliver the same level of service or value. When organisations choose to work with low-performing MSPs, they often unwittingly expose themselves to hidden costs that can adversely affect their operations.
Organisations must grasp the broader implications of their MSP choices, especially as they seek to optimise their staffing strategies. By recognising the potential challenges of working with less effective providers, businesses can ensure they make decisions that genuinely support their objectives.
The hidden costs of low-performing MSPs and how they affect your organisation
Are these hidden costs truly serious or merely minor inconveniences? Let’s examine some key areas where low-performing MSPs can negatively impact your organisation.
Challenges of engaging low-performing staffing MSPs
One of the primary challenges of working with a low-performing staffing MSP is the lack of access to quality talent. For example, if an MSP doesn’t have a strong network or a good reputation in the market, it may struggle to attract qualified candidates. This can lead to delays in filling critical positions, resulting in lost revenue, increased workload for existing staff, and decreased employee morale as teams scramble to cover gaps.
Without access to a diverse talent pool, organisations may rely on subpar candidates who lack the skills necessary for success. If deliverables are not met on time or to the expected standard, this hinders project outcomes and damages client relationships.
At CXC, we prioritise access to a diverse talent pool and leverage technology to connect organisations with suitable candidates. Our extensive network ensures our clients receive qualified talent suited to their needs.
Hidden costs beyond MSP service fees
While the fees charged by an MSP are the most apparent cost, organisations often overlook several hidden expenses—which may not necessarily be financial. Let’s look at some examples:
- The cost of re-hiring and training new staff can add up, straining your budget and resources. This can happen when an MSP doesn’t provide adequate training or onboarding for new hires, which decreases productivity and increases turnover.
- Low-performing MSPs may need to catch up with changing regulations, such as in Australia, exposing organisations to fines and legal troubles. Organisations could face significant penalties if an MSP does not ensure that temporary staff are compliant with local labour laws. This affects your bottom line and can lead to reputational damage and a loss of trust among clients and stakeholders.
CXC mitigates these risks through our comprehensive MSP solutions, which include sourcing, vetting, and engaging contractors while ensuring compliance with local regulations. We maintain rigorous governance practices and stay updated on legal requirements, so we significantly reduce the risk of worker misclassification and help our client organisations avoid costly penalties associated with low-performing MSPs.
Impact on organisational efficiency and performance
The inefficiencies caused by low-performing MSPs can ripple through an organisation—affecting staffing and overall performance.
For instance, if a company hires a project manager who needs to gain the necessary skills due to a low-performing MSP’s poor candidate selection, it could jeopardise an important project and damage client relationships. This can create a vicious cycle of poor performance, and each setback makes it harder for the organisation to recover and move forward.
Plus, the time spent resolving issues related to inadequate staffing can divert resources from core business functions. While organisational resilience is a must, this misalignment ultimately hinders an organisation’s ability to achieve its strategic goals. Teams are bogged down in firefighting rather than focusing on long-term growth and development.
Evaluating MSPs beyond cost: key metrics for success
When evaluating MSPs, organisations should consider key metrics beyond just cost. Factors such as the quality of candidates, speed of service, and responsiveness should be at the forefront of assessments.
- Speed and timeframe of service delivery: Organisations might consider how quickly an MSP can provide candidates for urgent roles or how well the candidates perform in their positions.
- Client satisfaction, feedback and success stories: These are crucial indicators of an MSP’s effectiveness. Engaging with current or past clients can provide valuable insights into the MSP’s performance. Understanding these experiences can help organisations gauge the potential hidden costs associated with a poor-performing provider.
- Longevity in the industry: A provider’s track record of sustained success can strongly indicate their reliability and adaptability. For example, CXC has been in the business for over 30 years, showing that we have the long-term stability and experience to navigate the complex and ever-changing workforce management landscape.
Recommendations for mitigating risks and optimising MSP investment
Organisations should take proactive steps to avoid the hidden costs associated with low-performing MSPs:
- First, they should establish clear expectations and performance metrics when entering a partnership. This helps ensure both parties understand their roles and responsibilities, reducing the risk of misunderstandings that can lead to costly mistakes.
- Regular reviews of the MSP’s performance should also be conducted. This can involve setting up quarterly meetings to discuss outcomes and identify areas for improvement. Open communication can help organisations address any issues before they escalate into larger problems.
- Investing in training and development for internal teams is crucial. Equip HR staff with the necessary skills to evaluate and manage MSPs effectively to enhance their overall staffing strategy. Having knowledgeable personnel can significantly reduce the likelihood of engaging with underperforming MSPs in the first place.
The verdict: is it time to rethink your MSP partnership?
The hidden costs of engaging low-performing staffing MSPs can significantly impact organisational performance. Understanding these costs can be a great starting point for implementing strategies to mitigate risks and making more informed staffing partnership decisions.
If your current MSP isn’t meeting your needs, it may be time to reconsider your options. CXC can help you unlock global expansion and access top talent worldwide with tailored MSP solutions designed to optimise your contractor workforce without inflating costs. With our expertise in compliance, sourcing, and workforce management, we empower organisations to navigate the complexities of contingent labour confidently.
Investing in a robust MSP partnership can lead to improved efficiency, better talent acquisition, and ultimately, enhanced organisational performance. If you’re interested in discovering how CXC Global can support your organisation, contact us today.
Additional FAQs on MSP services
How much does hiring a managed service provider?
The cost of a managed service provider (MSP) varies widely based on factors such as the scope of services, organisation size, and workforce complexity. Common pricing models include a percentage of the total contract value or a fixed fee per worker, with some MSPs using a hybrid approach.
While cost is an important consideration, it shouldn’t be the sole factor in choosing an MSP. The value provided through improved efficiency, compliance management, and strategic workforce insights often outweighs the upfront costs. Organisations should evaluate the total value proposition, including potential cost savings and operational improvements, when assessing MSP pricing.
How much does MSP labor cost?
MSP labor costs can vary significantly depending on factors such as job roles, skill levels, geographic location, and market demand. Typically, MSP labor rates include the worker’s base salary plus additional costs such as benefits, taxes, and the MSP’s management fee. Specialised or high-level roles command higher fees.
It’s important to note that while MSP labor might seem more expensive upfront compared to direct hiring, it often proves cost-effective in the long run. MSPs can provide access to a flexible workforce, reduce time-to-hire, and handle administrative burdens. Organizations should consider the total value, including potential efficiency gains and risk mitigation when evaluating MSP labor costs.
How do MSPs charge?
MSPs often tailor their charging structures to suit different client needs and preferences. Some offer a la carte pricing, allowing clients to select and pay for specific services they require. Others may use a gain-share model, where the MSP’s fee is tied to the cost savings or performance improvements they deliver.
More innovative pricing approaches include outcome-based models, where fees are linked to achieving specific business objectives, and subscription-based models that provide access to a suite of services for a regular fee. Some MSPs also offer dynamic pricing that adjusts based on market conditions or seasonal demand. Again, when evaluating MSP charges, it’s essential to consider not just the fee structure, but also the potential return on investment and alignment with your organisation’s goals.
What is the service provider charge?
The service provider charge in the context of MSPs refers to the fee levied for their management and operational services. This charge typically covers a range of activities including talent acquisition, onboarding, payroll management, compliance monitoring, and ongoing workforce management. It also often includes costs for the MSP’s technology platforms, reporting tools, and dedicated account management.
The exact amount and structure of the service provider charge can vary significantly based on the complexity of the services provided and the specific needs of the client organisation. It’s crucial for businesses to clearly understand what’s included in this charge and how it translates to value for their operations. Transparency in pricing and regular performance reviews can help ensure that the service provider charge aligns with the benefits received.
