Different way to bill for Managed Services?

Hi all,

I run a somewhat profitable small IT firm, there are two founders (me being one) and two IT techs. Most, if not all our business, has been referral or word of mouth. Those leads are drying up rather quickly and we want to grow to the next level.

We usually charge our customers either with Break/Fix or the flat monthly fee model for managed services for a certain number of support hours a month. We do not offer unlimited support for obvious reasons.

I am curious, are there any other ways to bill for Managed Services? I would like to offer a third option.

We tried a few sales prospects by pitching them a flat price per incident/service request, but those deals were not able to be closed. For instance, 5 monthly incidents for $1000, no matter how long it took to complete, be it 10 minutes or 10 hours. Prospects then ask if those incidents/service requests can roll over each month, to which we said no. This is sort of like Break/Fix/MSP hybrid. We are guaranteed monthly revenue, but also limit the work we put in each month.

I am trying to think out of the box and think of a more intuitive way to bill future business for monthly support services; I feel like that the hourly monthly restriction scares future business away due to fear of giving up "unused" hours, and the incident/service request model scares the customer into never calling us with issues for help desk (we would monitor servers and network stuff under this model). And Break/Fix is not a good way to scale our business.

Any thoughts? I would appreciate any help you guys can give, a good discussion to help us grow.

Thanks.
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SpejAsked:
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notacomputergeekCommented:
Almost all our clients are on Managed Services - usually in their office. We agree to be there the same time/day each week or month. They are billed the same amount on the 1st/15th (but could be done every other week, etc). We keep a running total, so we can be either ahead or behind on the number of hours spent. If the amount over/under becomes uncomfortable, they see a credit or extra charge (based on the equivalent hourly rate) on an invoice. Additionally, they get discounts based on how many hours they contract.

Look at it from a business owner's perspective. Most look at IT as a necessary overhead to their business, so if they can budget for it, it's an easier pill to swallow. I've also found that being in their office has problem solving advantages for the client: 1) we get to know the environment and staff better, 2) they know you'll be back to keep working on a problem, 3) not all your time will be break/fix, so you can be proactive, 4) we don't have to spend time re-learning the nuances of their systems, 5) we identify problems before they happen, etc.

I know this is not out-of-the-box thinking, but this has worked for us. We have never lost a managed services contract in 10 years that wasn't planned to end. This creates very steady work.

Create a business relationship. I used to have them sign 6-month contracts, but I got to the point that I was so confident in our ability to perform that I just tell them, "If you don't like us, just tell us to go away." No one ever has and it's far less paperwork and commitment from the client's perspective.

One more thought - offer them say, a 25% discount on managed services for the first 3 months.
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SpejAuthor Commented:
I appreciate you taking the time to answer.

Are you saying that your managed services contracts don't have a monthly hourly restriction? I assume you provide "a reasonable number of hours of work a month" based on the clients environment? (Where a 2 server 10 PC firm needs less work than 5 servers 25 PC firm). How do you know when to bill for "additional" work? Would that not lead to a conflict with the customer? Surely all your customers are not easy going, understandable businesses that always pay on time.

The problem we run into these days (and the reason for my question) is that a common question of "what happens to my unused hours" always comes up during our sales process. We have no choice but to tell them "sorry, they go bye bye." This is something we are trying to work around. I don't see us being able to offer "unmetered" IT support because sometimes people don't want it or we don't see it as a viable solution.

Also on the "no contracts" part, will that ever get you into legal trouble if one of your guys ever were to make a mistake and cause some big problem that your E/O insurance may not cover?
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notacomputergeekCommented:
First, we and the client agree on a set number of hours. Since they usually don't know how much they need, I tell them as a rule of thumb, it's the number of computers times 0.2 = number of hours per week. This is for a server environment, so a non-server environment should be less. e.g. If the customer has 20 computers, the formula would be (20 X 0.2 = 4 hrs/wk). I don't like the per computer agreements, because that number can change weekly and the client could also comeback and say, "Why are you charging me for those two computer that hardly get used?". Clients usually have a budget amount in mind, so it's easier to adjust hrs/wk than it is to say, "Well, let's not support those 5 computers or we could cut our per computer charge." If they don't agree to a sufficient amount, then it may take longer to get things done.

Yes, you will have an occasions where significant hours may be needed, so I guess you could say there's no restriction. Such as a server crash, new projects, etc. They understand up front that these situations arise and you will have to expend additional manpower to cover it. You don't want to ignore them just because they didn't have any hours left. It's like break/fix on top of managed services. On the flip side, holidays, vacations, weather, etc can affect our ability to provide services that week, so you can also get behind schedule. That's why we keep a running total and the client never has unused hours - they carry over. It all works out over time. However, if a client contracts for 4 hrs/wk and we've been ahead of schedule 6 hours for a month or so, then I'll tell them we'll be billing for the extra hours on the next invoice.

Actually, I have very few customers that get behind on paying. Managed services helps them budget it. I also work with a lot of non-profits and they don't spend money unless they have it. We also offer the same services to non-profits at a 30% discount as our way of giving back to the community.

Another added benefit to Managed Services: We're a hardware reseller, so guess who they'll buy their hardware from?

Errors and omissions insurance covers the legal issues. you can also get them to sign an agreement the first time you do business with them, but not one every X months.
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SpejAuthor Commented:
Good valid points, notacomputergeek. I agree with you that charging with avg hours (.02 x number of devices) is a better way to charge rather than a flat rate per PC, thanks for that.

We bill all of our project work separately, so the client knows they are paying for our extra time. However we do give our clients a break on the hourly project rate if they are on managed services with us vs our normal rate for Break/Fix.

"...sign an agreement the first time do you business with them..."

Is this a managed services agreement? You mentioned you are confident and tell the client "tell us to go away if you don't like us" so I assume you allow clients to break contracts if they are unhappy with your service with no penalty? We have several signed agreements that include a clause in that includes an ETF if the client wants to terminate the agreement.
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notacomputergeekCommented:
Yes, I have a one page managed services agreement they sign that just states how many hours for how much and a few other terms (who pays travel, any weekend rates, etc). It's not very legalese-speak. I like to keep things simple. Clients may also want you to sign a confidentiality agreement as well.

It's not a term contract, so they don't actually break it. It's sortof a open-ended handshake agreement. I just think it puts a bad taste in their mouth if you start putting a bunch of restrictions on them. If they're unhappy with the service, then you'll have to take them to court to collect anyway, because they're not going to pay it without a fight. Believe me, just because you get a judgment, doesn't mean you'll collect anyway. Your time is worth money and most of the time you'll be in small claims court anyway.

Where I would use a more formal document would be with larger companies and they would probably want one too.
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