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Becoming A Small Business IT Consultant: Choosing a Business Model

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IT Consulting can be a lucrative business, but building a client base and reaching a level of financial comfort and sustainability is not always easy.  In fact, it can be extremely difficult.

I’m not going to focus on your skills and technical qualifications - I’ll assume you have confidence in your ability to install and support relevant IT technologies used in most small businesses.  Instead, this article is intended to provide an overview of the two most common types of IT Consultants - the Break/Fix Consultant and the Managed Services Provider (MSP).

In the Break/Fix business model, you are called when a client has a problem. This is more of a traditional approach, similar to how plumbers, electricians, and auto mechanics work.  You typically charge an hourly rate for the time spent solving the problem in addition to any materials costs, such as a replacement hard drive or keyboard.

One problem with the break/fix model is that work can be inconsistent. If you know what you’re doing, do it well, and are an honest and ethical person, then any given client may call you once every few months as problems develop.  To support this business model, you need many clients who can each call only occasionally so that you have enough volume of calls and clients to make enough revenue to support you and your business.  Especially starting out, this can be very difficult and if you’re good, you can actually put yourself out of business quickly if you don’t do enough marketing and sales.

Another problem with the break/fix model is that some consultants can get a reputation for creating problems.  Like the mechanic who tells you you need a new engine when an oil change and some spark plugs will do, some consultants can essentially and intentionally break and cause problems with client networks just to generate business.  If the business owner has ever hired - or thought they might have hired - such a Consultant, that can forever put suspicion on you.  Put another way, the Consultant benefits from the Client’s problems so it’s the Consultant’s best interest for the Client to have problems.

Clients already on or with good experiences with Break/Fix technicians will often want to stay that way.  With good break/fix consultants, IT costs can be very low, but unpredictable.  For five months, a company may choose not to call in the consultant for anything... and may appear to run fine. But if a server has a disk fail in a RAID and the consultant is not monitoring (A break/fix provider generally wouldn’t be), and then another disk fails, the client could end up with a serious and expensive outage in that sixth month.

Prospective Consultants should be aware of the business requirements and realities of Consulting before pricing their services.  Consider reading my article How Do I Know What To Charge as an IT Consultant?

In the Managed Services business model you are a Managed Services Provider (MSP).  The MSP is hired and paid a fixed monthly rate to keep the systems running as finely tuned and reliably as possible. The fixed monthly rate covers specified services by the consultants.  For example, a consultant may choose to include application of all patches for Microsoft products, mitigation of malware infections, and repair of failed hardware and crashing applications. No matter how long it takes to repair a covered failure, the client doesn’t pay any extra.  

Consultants, in order to ensure things stay running as reliably as possible, often install remote monitoring and management tools (RMM) that keep them advised of most problems as they develop and before the client even notices.  Such tools can, for example, monitor the SMART status of hard drives, monitor the event logs, monitor backups, notify you when antivirus updates don’t take place, provide remote access, and more.  The idea being that the sooner you know about a problem, the sooner you can fix it before it blows up into a catastrophic issue.  This is especially important in an MSP model because you’re making a fixed rate each month - every minute you spend servicing that client’s needs is costing you, not the client, money (well, it’s likely costing the client lost revenue, but it’s deducting from your net profit also).

The MSP is, in many respects, the contracted IT department for the company.  Many MSPs, as part of their offerings, include products and services designed to minimize the interruption to their clients when problems occur but also minimize the time spent resolving issues.  For example, an MSP might install one or more Windows Home Servers or Windows Storage Server Essentials products to backup workstations.  In the event of a malware infection or failed hard drive on a workstation (especially on workstations that may be used for very specific purposes), a consultant would come in and restore from a previous day’s backup on the Windows Home Server - doing so is much faster than spending 3-6 hours re-installing Windows and subsequent software, patches, and updates.

When operating as a Managed Services Provider, one of the most critical things is to define what your services do and do not cover.  Most managed services providers won’t cover things like installing a new server - those are considered Projects and often billed at an hourly or flat rate outside the typical monthly fee.  Pricing for managed services offerings varies as does the offerings of service from MSP to MSP.  It can be virtually impossible to compare costs and services between two MSPs since the MSPs can often use different products and methods in support of the client environment and can charge different rates because they are including more or less than the one another.

Pricing your offerings can be an even greater challenge and make you want to reconsider the whole idea.  Some consultants I’ve spoken with have base prices for one or more of the client’s workstations, servers, network devices, users, printers, sites or other countable item.  For example, some may charge $40 per workstation and $200 per server and then do the math to come up with a monthly fee.  Some may include a per printer charge, a per site charge, and a per switch or network device charge.  Some include those at no additional charge.  And some consultants I’ve met evaluate the client’s network - the number of workstations, servers, devices - and then evaluate the client - how important is IT to the business?  For an investment firm, IT may be critical.  For a gardening store, not so much.  Based on the criticality of IT for the client, they will mark up or mark down whatever price they might be first inclined to charge.  The key is knowing what your services will cost you and understanding the expected amount of ongoing maintenance the client will need.  Whereas Break/Fix consultants generally make pure profit (before everyday operating expenses) for every hour at a client’s site, an MSP typically has to pay several third parties for various services they are reselling to the client and using to maintain the client’s network (for example, RMM tools, helpdesk services, backup services, etc).

The biggest advantage for the Consultant being an MSP is that they get a fixed income every month from every client, so they can have fewer clients without having wild fluctuations in revenue each month from hourly billings.  The advantages for the Client is that they have a fixed monthly bill and their network is being proactively monitored and protected from failures that could have a serious business impact.  

All of the advice and perspective above is based on my experience and my conversations with other IT consultants.  Use it at your own risk.
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Author:Lee W, MVP
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by:younghv
Very well written and informative Article.
I've seen a lot of questions/discussion on just this topic, so it should benefit a lot of EE Members.

"Yes" vote above.
Thank you.
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by:SISAnt
Extremely interesting read on the difference between being break/fix and MSP.

Yes, the article was helpful.
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by:DevilDoc325
An excellent article
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by:kachro
Bravo.....one question poped up (just curious)...what's your base (approximate) of clients....can you tell?
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by:hvillanu
This is good!
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