IT and Business Insights for SMB Solution Providers

What is Project Labor?

We get email. Craig asks, "What is project labor?" But then he gives an example (cleaning up a rat's next of wiring) that may not be a project at all. Here are some thoughts.

First: Please review two recent videos on dividing and bundling labor. Part One is here: https://www.youtube.com/watch?v=MDGYct8AE48

and Part Two is here: https://www.youtube.com/watch?v=G8SRx3OyaU4

Second, create clear definitions within your company for three different types of labor.

Maintenance Labor consists of all those things you do to maintain systems and prevent problems. You might call this preventive maintenance labor. This includes patches, fixes, updates, testing backups, installing service packs, reviewing event logs, defragging databases, etc. Anything that improves daily operations and staves off problems is considered "maintenance."

The goal of managed services is to sell all "maintenance" labor for a flat monthly. Ideally, you will include everything you can in maintenance labor so that the client is very clear when something is not maintenance. "Not maintenance" is either add/move/change or a project.

Your mileage may vary, but here's what we came up with: We estimate about 1.5 hours per month to maintain a server to our standards. And it takes about .25 hours per month to maintain a workstation. So if a client has one server and 20 desktops, we would estimate about 6.5 hours per month to maintain their systems. Assuming a reasonably trouble-free network, you might round this up to seven hours per month (84 hours/year) on average to maintain their entire environment.

Note that you CAN calculate how much labor it takes to perform maintenance labor over a year's time. Assuming you provide the same level of maintenance across all your clients, you'll find that the amount of labor needed to maintain a server or workstation is within a very predictable range.

Break/fix or miscellaneous hourly labor is labeled "Add/Move/Change" in our system. This title helps clients and employees draw a nice line between what's covered under maintenance and what is not. An addition of a user or workstation is not maintenance.* Changing out a switch for a newer switch is not maintenance.* Moving equipment around the office is not maintenance.**

For me, A/M/C or B/F labor is just normal stuff that comes up from time to time in any office. In other words, it's not a project. If Outlook opens in safe mode, fixing that is maintenance. If a machine does not have Outlook installed, then installing Outlook is an Addition and therefore billable.

We used to estimate that A/M/C labor was equal to about 25% of managed service labor. But, with newer equipment, business-class equipment, and cloud services, this number has gone way down. For the average cloud service client, A/M/C labor is between 0% and 10% of the monthly managed service labor.

Project Labor refers specifically to a job that is a little larger and takes more than one step. For example, installing a new server involves setting up the hardware, installing the O.S. and software, joining the domain, migrating data, and configuring everything so it's accessible to clients who need it. Because it's many steps, the project is large enough that it should be handled separately from basic A/M/C service tickets.

I highly encourage you to quote projects for a flat fee. This requires that you have some pretty good estimates of how long it has taken you to do these things in the past and what it will cost you to deliver this project. For the client, a flat fee guarantees a known price and gives them the comfort that there won't be cost overruns. For you, it forces you to quote the job profitably and motivates you to be as efficient as possible to maximize your profit.

When we're honest with ourselves, we have to admit that any project can experience a labor increase or decrease of ten percent just due to circumstances outside our control. With a flat fee, you can take that potential increase into account and then focus on controlling things as much as possible, almost forcing yourself to greater profitability.

If you haven't read Project Management in Small Business by Dana Goulston and myself, please check it out. If you're rigorous, you can guarantee that no project is ever unprofitable again.

So let's get back to Craig's specific question: The Rat's Nest. He says, in part:

"They have a running network but the network cables look like a rats nest and they want me to straighten it up.  The thing is the network is fine, so I see this as a project because this is a request that although it’s needed, it’s not required for them to have a running network.  I came into this situation I didn’t create it."

The good news is: 1) The client wants you to fix this, and 2) They know you didn't create it. As you said, the network is working, so this is really just ugly, sloppy work that needs to be cleaned up. I also assume the place could benefit from a few labels here and there, and maybe even a bit of color-coding if the network wiring includes Internet wiring, data wiring, and telephone wiring. But even if it's just unplugging and re-plugging everything so it looks professional, it's definitely a billable job.

The good news is: If you haven't signed a managed service deal yet, you can include the cost of this in their "setup fee" and it will appear to the client that it's just included in your service. So you might have that option.

As for whether this is Add/Move/Change or a project, I would go with a project simply because a job like this is perfect for flat-fee service. You can do it over a series of days if that makes sense (e.g., one hour per day at 5-6 PM until complete), or do it all at once during a time when they can afford downtime. Make sure you include cables if needed, and Velcro ties (not zip ties) in your price estimate.

You could decide to simply create a ticket and charge by the hour. But remember that things like this are a great way to build rapport with a new client. So even with a ticket, I'd work very hard to stay within your time estimate so the client knows they can depend on your word.

Hope that helps. If nothing else, there's plenty to think about.

- - - -

* Unless it is. Of course you can create managed service agreements that include new desktop PCs at regular intervals or hardware-as-a-service contracts that include new equipment from time to time. You can create any deal that makes sense for you.

** There really is no exception here. But since the last two had asterisks, I thought you might be expecting one here.

:-)

About the Author

Karl W. Palachuk, is a technology consultant, author, speaker, trainer, and coach. He is the author of fifteen books. He has built several successful businesses, including two managed services companies.

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