Is a full managed services agreement not the perfect fit for some clients? Find out when and how to offer pre-paid IT support hours, instead.
In recent years it has become the norm for managed services providers to provide flat-rate pricing to clients covering all of the service needs. As a former MSP owner, I can attest to the power of this model in terms of generating revenue, cash flow, and building sticky relationships with clients.
Getting clients to sign MSAs are big wins for any MSP, but what about when an MSA isn’t a fit?
What do you do with a prospect that doesn’t need your “full-stack” and both sides realize that?
Do you say no?
Do you try to shoehorn them into an MSA?
How about when it’s your uncle’s business, and you have a family obligation to help with their IT, but you don’t trust them enough to provide service under that model?
What about when you know the client will beat you down with support tickets, leaving you penniless in profits on the contract?
As MSP owners, we have many examples of the above scenarios. It can leave you second-guessing yourself after you’ve placed yourself into the “I’m only doing all-you-can-eat / flat-rate pricing MSAs” camp.
When and how to offer pre-paid IT support hours
In my MSP days, I focused on the professional services vertical. The way I defined that was businesses that made their money at their computers (think attorneys, accountants, and consultants, for example).
However, even though I focused my efforts on landing professional services clients, it took me quite a while before I could afford to turn away everyone else. My client list included plumbers, electricians, and other trade-based businesses using computers, as well. In these cases, if I realized that a client wasn’t going to justify a $100+/month seat price and I didn’t have a good argument for it, I would pivot to a pre-paid block hours agreement.
Likewise, if I suspected a client might enter excessive service tickets, or if there appeared to be many issues to resolve before getting the full agreement into place, I would offer pre-paid hours to get the preliminary work completed with an eye to transitioning them over to a full managed services agreement once it was done.
How to package block hours and handle billing
In most cases, I would offer these auxiliary clients blocks of 10 hours of support. If there was significant up-front work to be done, I offered 20- and 30-hour blocks at a discounted hourly rate, usually $10-off per hour. I would enter this agreement into my PSA so that technician hours could be billed against it, and I had it set to notify us to send a new invoice when the available hours got down to two remaining hours.
Alternatively, we would put their billing on ACH and inform the client each time we reloaded their hours.
Leveraging your RMM
Of course, even under this pre-paid model I still wanted to be proactive, so I would include remote monitoring and management at no additional cost. That’s right. I gave away RMM for free!
I know. Many are probably wondering — why? The answer is simple. For one thing, RMM is inexpensive. But even more importantly, it wasn’t just a cost for me — I used my RMM to drive revenue and profitability.
When you’re selling hours you want those hours to be utilized so that you can sell more. But you also want to make sure those hours are being used on tasks that keep the computers and network secure and running smoothly — not on 2am “server down” calls that wreck your ability to service your MSA clients efficiently and effectively.
Another path to recurring revenue and a successful exit
As I sold more pre-paid hours to clients, I realized that I needed to have some protections in place and formalize the agreement. Reducing my risk wasn’t my only motivation, though. I knew someday I would be selling my MSP, and improving my valuation was constantly on my mind. When I did eventually sell my MSP the buyer considered these pre-paid hours deals as valid agreements generating recurring revenue (hard not to see it that way when you receive the money from the client upfront).
Free example agreement template
Take a chance to review the new NinjaRMM Pre-Paid Support Hours Agreement template, which provides you with an easy-to-customize doc that you can use to provide services and generate revenue from a broader range of clients — all while reducing risk and increasing the value of your business.
Disclaimer: Before using this agreement, please consult legal counsel in your state.
If you have any questions about the agreement, you can reach me directly at Tom[dot]Watson[at]ninjarmm[dot]com.