The question comes up in almost every conversation we have with SMB finance leaders: is it cheaper to hire someone in-house or pay an MSP?
The honest answer is: it depends on what you're actually comparing. Most businesses underestimate the true cost of in-house IT, and most MSP quotes don't make it easy to compare like-for-like. This post runs the numbers for a typical 20 to 50 person Australian business and gives you a framework for making the decision.
The True Cost of In-House IT
The salary conversation usually starts at $75,000 to $90,000 for an IT generalist in Adelaide or Melbourne. That's not the full cost.
Add superannuation at 11.5% (the 2024-25 rate), standard leave entitlements (annual leave, personal leave, long service leave accrual), and the fully loaded cost is closer to $95,000 to $115,000 per year before you've bought them a laptop or paid for any tools.
Then there's recruitment. The average cost of replacing an IT employee in Australia runs $15,000 to $25,000 when you factor in agency fees, onboarding time, and the productivity gap during transition. IT roles turn over. One resignation every three years adds $5,000 to $8,000 per year to your real staffing cost.
The harder cost to quantify is coverage. One person cannot cover everything. If your IT generalist is good at helpdesk and network management, they're probably not a cybersecurity specialist. They can't work on your cloud migration and handle support tickets at the same time. And they're not available at 11pm on a Tuesday when the server goes down.
For a 20 to 50 person business, the total annual cost of a single in-house IT person, fully loaded, runs $100,000 to $140,000 per year when you include salary, super, leave, training, tools, and occasional contractor support for the things they can't handle.
What a Managed Service Provider Actually Costs
Pricing varies, but for a full managed IT service covering helpdesk, monitoring, patching, backup, and security, most Australian MSPs charge $100 to $200 per user per month.
For a 30-person business:
- Low end: $3,000/month, $36,000/year
- High end: $6,000/month, $72,000/year
That's a significant saving against in-house, even at the high end. Research & Markets data puts average cost reduction from managed services at 20 to 30% compared to equivalent in-house capability. The comparison gets more favourable when you factor in that an MSP brings a team, not a person. You get helpdesk, monitoring, security, and specialist escalation all included.
94% of SMBs already use an MSP in some capacity, according to Integris IT research. The question for most businesses isn't whether to use one, but how much to rely on one.
The Hidden Costs on Both Sides
In-house hidden costs:
Knowledge walk-out risk. When your IT person leaves, they take institutional knowledge with them: passwords, network maps, vendor relationships, system quirks.
Skill ceiling. A generalist is good at many things and specialist at none. Complex cybersecurity, cloud architecture, and compliance requirements typically exceed a single person's expertise.
Availability gaps. Leave, illness, and after-hours incidents expose the single-point-of-failure problem.
MSP hidden costs:
Out-of-scope work gets billed separately. Projects, migrations, and anything beyond the retainer scope usually incur additional fees. Get the scope in writing and understand what's not included.
Response time variability. During a major incident, your MSP is managing multiple clients. Response SLAs are contractual, but priority is sometimes negotiable in practice.
Ramp-up time. A new MSP needs 30 to 60 days to properly understand your environment. That period carries more risk than steady state.
The Decision Framework
The managed services model wins on cost for most businesses under 50 people. But cost isn't the only variable.
Choose in-house (or a hybrid model) if:
- Your IT is genuinely a competitive differentiator that needs to move at product speed.
- You have compliance requirements that make third-party access difficult.
- You need someone on-site daily who understands your business deeply.
Choose managed services if:
- Budget predictability matters. Techaisle's 2026 SMB research found budget predictability is the number one IT challenge for small businesses. A fixed monthly fee removes surprise capital expenditure.
- You want access to specialised skills without hiring five people.
- Your current IT person is a bottleneck rather than a resource.
The hybrid that works best for most SMBs: an MSP for infrastructure, monitoring, and helpdesk, combined with either a part-time internal IT coordinator or a separate specialist for strategic projects. You get cost efficiency and on-site presence without the full-time salary burden.
Asking the Right Questions Before You Sign
Before committing to a managed services agreement, get clear answers on:
- What is explicitly in scope and what gets billed as a project?
- What are the response time SLAs for different severity levels, and what happens if they're missed?
- How is the transition managed if you decide to change providers in two years?
- What security certifications and frameworks does the MSP comply with?
- Do they have experience with your industry and the software you actually use?
The cheapest MSP quote rarely reflects the best value. A provider charging $120 per user who knows your accounting software, your cloud environment, and your compliance requirements is worth more than one charging $80 who will need to learn all of that on your time.
For more on keeping IT costs under control, see how to reduce IT costs without cutting capability and cloud cost optimisation for small business.
