Is a fully managed services agreement not quite the perfect fit for some clients?
In recent years it has become the norm for Managed Service 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 like your biz is a redheaded stepchild 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 do you pivot to the Pre-Paid Support Hours Agreement?
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. Examples being: attorneys, accountants, and consultants. I focused my efforts on landing “professional services” clients, but I couldn’t afford to turn away everyone else. Examples would be plumbers, electricians, and other trade-based businesses using computers, but they were ancillary. If I realized a client wasn’t going to justify a $100+ per month seat price and I didn’t have a good argument for it, I would pivot to a pre-paid block hours agreement. If I suspected a client might enter excessive service tickets or 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 and then transition them over to a managed service agreement.
If I felt like Pre-Paid would be the best option in most cases, I would offer blocks of 10 hours. If there was significant upfront 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 had it set to notify us to send a new invoice out when the available hours got down to two remaining hours. Alternatively, we put their billing on ACH and informed the client each time we reloaded their hours. Of course, under this model, you may still want to be “pro-active,” so I would include RMM at no additional cost. That’s right. I gave away RMM for free! I know many would ask why you would do that. The answer is simple; RMM is inexpensive, it allows you to be proactive, and while doing so, it drives ticket creation. You sold hours, and you want those hours to be utilized so you can sell more, but you want to make sure those hours are used on tasks that keep the computers and network secure and running smoothly and not on 2 a.m. server down calls.
As I sold more pre-paid hours to clients, I realized that I needed to have some protections in place and formalize the agreement. I also wanted to count this as recurring revenue that the end-user paid for up-front. I knew someday I would be selling my MSP, and I consistently applied the question, “Does this increase the valuation of my business?” It did! When I sold my MSP, the buyer considered these as valid agreements generating recurring revenue. Hard not to see it that way when you receive the money from the client upfront.
Take a chance to review the new NinjaRMM Pre-Paid Block-Time Agreement, which provides you an easy-to-customize agreement that will allow you to provide services and generate revenue from a broader range of clients 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 [email protected]