Costing your labor – The importance of accurate staffing costs

Staffing costs are usually an MSP’s biggest expense, and a common beginner’s mistake is to underestimate this cost. Ultimately, having a good grasp of these costs can be the difference between your company turning a healthy profit or barely breaking even.

The first thing to remember is that staff costs are not only about a salary payment, many other expenses are relevant and must be factored in too. Consider the following:

• Social security payments
• Pension contributions
• Travel expenses
• Training and development costs
• HR expenses
• Holiday pay
• Sick pay
• Maternity / paternity pay
• Healthcare costs

When you add in the costs above, it’s clear that the cost of employing a member of staff is often way in excess of their basic salary figure.

How to proceed

Try not to let a full awareness of staffing costs discourage your from expanding your business. IT support companies can be tricky to scale up, and the initial step from “one-man band” to fully fledged company is particularly daunting.

There’s no easy way around this. The revenue required to support two staff may mean far too much work for one person, so at some point it may be necessary to invest in the next employee before enough is coming in to pay them. Otherwise, you risk over-stretching your existing resources and jeopardizing your service levels. This is similar every time your company expands, although never so pronounced as with the first new member of staff.

You may find you need to seek funding from your bank or elsewhere to ensure you can cover a few months of staffing costs, until the employee presence can begin to pay for itself. If you can prove the existing success of your business, this should be fairly straightforward, although the economic climate makes it harder for businesses to borrow money than it once was.

Accurate staff costings

This brings us back to the importance of accurate costings. There is no benefit to underestimating the true cost of employing people, so it’s best to produce some projections that include estimates of all the costs in the list above. This is equally important for existing staff (including you) as it is for new employees.

Once you are confident of your staff costings, you may find yourself needing to revisit how much you charge clients for your services. You may surprise yourself and find out that some services aren’t making as much profit as you’d hoped.

If this is the case, try not to be discouraged. Now that you have realistic knowledge of your costs, you are empowered to structure your service offerings in such a way as to ensure your work is worthwhile. And now you know all the costs in detail, you’ll find it easier to justify your prices to your customers!