Editor’s Note: In this article, Jay Remotti, IT Manager at ONTRAPORT, provides his expert opinion on how to control IT budgets on a per employee basis using fair market value leases vs dollar buyout leases. Thanks for sharing these insights on our IT Manager Checklist, Jay! Btw, ONTRAPORT is hiring, head over for openings!
Reasons for Leasing
In terms of business expenses, ONTRAPORT is very interested to move from Capex (upfront cost) to Opex (ongoing cost) because we are a SaaS company looking at monthly recurring revenues. Thus it makes great sense to use an Opex model which allows us to predict free cashflow much easier.
To support our goal of having more operating than capital expenses, engaging leasing companies will help a lot in this aspect. Especially for new and small companies, using free cashflow to buy capital equipment is not really feasible as a couple hundred thousand of dollars is simply too huge an expense. Moreover, the purchased equipment will likely be obsolete in 3-4 years, thus there is really no point in spending full price for a machine that is equivalent to 3 years on a lease, but not worth much once it’s paid off.
On the other hand, leasing equipment allows us to save up to 10% on the unit. We can roll-back the model to the leasing company and then get the newest equipment.
A separate but relevant point -- payment in perpetuity which allows us to plan budgets better and calculate cost much more granular per employee. There is a fixed operating cost per employee, and let’s say the laptop costs us $75/month, we can calculate a cost per employee in a 28 day cycle.
Coming Up With the Plan
I brought this to the executive team and had always heard that it’s more advantageous to do a fair market value at sufficient scale. If you are not scaling so fast where you are bringing on freelancers, interns or file clerks, it would make more sense to do a dollar buy-out since they wouldn’t need so many new machines. Then it makes sense to keep the laptops as long as you can.
Executing the Plan
I work closely with the director of finance to determine budgetary requirements for IT initiatives. We first focus on the overall budget and then break it down to a per employee number. In this way, I know exactly how much money I have to work with to accomplish my strategic goals.
For the headcount projection, the Executive team gives it to me - for example, wanting to have 50 engineering employees. And then I work with Finance to work out how much the ‘employee per month’ cost is, and work with vendors and partners to deliver the cost numbers. Obviously costs per employee will differ from departments -- we run virtual machines on the computers, so we would need a lot more RAM than for example, people in the sales department.
We also have a role based worksheet where there are different specifications based on department, e.g. engineering or marketing. We use this for things like monitor requirements monitors (e.g. graphic designer), network connection speed, VPN, security profile, access to internal resources. When HR onboards a person, the IT ticket has the role code for the spreadsheet. Everything will then be specific: access, which machine image, security, etc. And in the event where a new role is created, we discuss job duties and functions in a meeting to set up the specifications for that role.
Deciding Between Leasing Models
To get started, take your current requirements, e.g. 50 new workstations in the 3rd quarter to a vendor like HP or Dell and get a quote. Then speak with the leasing people first because that’s the easiest since they work best with their own salespeople. Get a quote for dollar buyout lease and fair market value lease, and present the 3 options to your manager:
- Outright cash expenditure - simply pay $40 000 outright.
- Dollar buyout - cost us $10k to start the lease, at the end we own the equipment.
- Fair market value lease - $30k for equipment which we’ll pay off over the next 3 years.
The difference between dollar buyout and a loan is that the former is secured by the equipment you are purchasing. If you default, they just take back the equipment. A loan could be secured by a personal guarantee or some other asset the company owned. In that case, whatever you are buying can be soft cost.
It is important to note that IT doesn’t make these decisions -- we bring the options to management. From there, the management will then factor in their model and make the right choice, since there might be other considerations like launching large marketing campaigns which take up free cash flow and make leasing more attractive.
Another interesting point is that we don’t use the model on servers yet, we are focusing on dollar buy out of the server to get the most bang for our buck.
Phone-based systems are not just a small-business solution. CEO of Kisi, Bernhard Mehl, comments: “If you see the average of three doors connected then that might seem low but, in reality, one door relates to around 50 employees—so those are locations with about 150 people on average, including satellite offices. That’s quite significant.”
Mobile Access Control Adoption by Industry
Kisi examined which industries are investing the most in mobile access control technology. To do so, the average size of mobile access control installation projects by industry were measured. Commercial real estate topped the list with 23.5 doors running mobile access per facility. Education management came in last with 1.0 door running mobile access per facility.
The number of shooting incidents at K-12 schools, according to the CHDS, reached an all-time high at 97 incidents in 2018—compared to 44 in 2017. Cloud-based access control companies, like Kisi, offer a lockdown feature for active shooter situations or emergencies, making it an effective protective layer for places that are targeted, such as religious institutions, which come in near the top of the list with 4.0 doors running mobile access per facility.
Based on industry size, it makes sense that commercial real estate tops the list, with 23.5 doors running mobile access per facility. Cloud-based access control enables these larger organizations to scale more seamlessly and allows large organizations, like telecommunications, to deploy the most manageable IT solutions available, eliminating the need to create and manage a business’s own IT infrastructure over time.
“Commercial real estate is, of course, the driver of mobile adoption since they have the largest buildings,” Mehl adds. “The key here is to show that mobile-first technologies are not a risk but an innovation that brings positive ROI and allows agencies to reposition their buildings as forward-thinking establishments.”
The scalabelilty and ease of use in onboarding an organization allows many different types of industries and businesses of different sizes to adapt a cloud-based access control system, either using keycard or mobile credentials for access.
Mobile Access Control by State
Looking specifically at the United States, Kisi analyzed in which states companies are investing the most into upgrading to smartphone-enabled access systems. Of the currently installed base of access control readers, around 20 percent will be mobile capable by 2022, according to a recent IHS report. Cloud-based systems, like Kisi, are future-proof—allowing over-the-air updates in real time and unlimited scalability for users.
“Mobile unlock technology makes you think of the major tech hubs like New York, San Francisco or Los Angeles,” Mehl adds. “Looking at which states have the largest projects, it’s surprising and refreshing that those are not the typical ‘tech cities, and yet that’s where access control technology really makes an impact.” The fact that the largest projects are seen in states outside of the typical tech startup landscape is evidence that mobile access control is highly applicable across industry sectors.
For further questions about this study, reach out to Kait Hobson (email@example.com)