EVERY MSP wants more business. Indeed, customer acquisition ranks as one of the top three concerns in most industry surveys. Today, according to Kaseya’s 2023 Datto Global State of the MSP Report, the traditional break-fix model is evolving in a way that MSPs can use to gain new customers. Indeed, the annual survey found rising break-fix revenues for MSPs.
What’s going on? MSPs that raise their hands for break-fix work have an opportunity to convert some or all of those customers to full monthly recurring revenue (MRR) status.
“One hundred percent, yes, break-fix leads to more opportunities,” says Jay McBain, chief analyst at analysis firm Canalys. “Customers invite you without you spending a dime on advertising or social media. It’s the perfect entry point to start a conversation with a customer. When you’re on-site and able to relate to customers, that leads to more sales. That’s why Best Buy started Geek Squad.”
That was Joe Balsarotti’s experience. “Almost all our small office/home office or individual clients on maintenance programs started off as break-fix,” says the president of St. Peters, Mo.-based Software To Go, now celebrating its 40th anniversary.
Paul Parisi, founder of SaviorLabs, an MSP in Boxford, Ma., doesn’t call it break-fix, “but inevitably things break, and we fix them,” he says. “Clients just pay us differently. They view it as a way to get to know us, and this has been a valuable way to get in the door.”
Fast Computers, an MSP based in Hagersville, Ontario, built a reputation for data protection and networking, which led to break-fix services and projects in those areas that converted customers into full MRR clients. “When we deliver the service, they often ask us to quote additional things,” says owner Chad Kempt, adding that “there’s a fine line between break-fix and project work.”
Strategies to Convert Clients to MRR Contracts
Moving break-fix engagements to MRR customers “has to make sense,” Parisi says, “and it has to be couched in understanding how big a hammer you need to manage risk.” Sometimes, prospects don’t believe technology is as critical as it is. “They settle, making things challenging for us,” he says.
One way Kempt nudges a client from break-fix to a contract is by explaining that MSPs do things for contract clients they won’t do for break-fix projects. “A Band-Aid for two hours of tech time is OK, but we won’t spend 13-14 hours to properly fix a complex problem unless that customer is under contract,” Kempt notes.
He also informs break-fix customers they’ll be scheduled around the needs of his contract customers, because his staffing is built to support his MRR clients.
Kempt reports considerable success from passing out “IT Assessment” forms during speaking opportunities. “These are IT questions for company executives to take to their IT person and get validations from technical areas like checking their email server.” Many execs reach out and ask Kempt’s company to do the assessment for them, and he completes them on a project basis. Even if those customers don’t buy his full MSP service portfolio, they often provide some recurring revenue.
“We do a lot of 365 migration projects and continue to provide licenses and some monitoring.” He reports similar success with backup assessments, where he put Datto backup systems in place and manages licenses and monitoring on a recurring basis.
“We have a monitoring package available,” adds Kempt, “where we check patches, update security, and the like. If a tech touches a device or remotely connects, the customer gets a bill. Things like auto reboot, Active Directory subscriptions, 365 licenses, and backups are all automated.” Those aren’t full MSP customers, but they provide recurring revenue after a break-fix call or assessment.
For his part, Balsarotti has a discussion with break-fix customers who need more than a few tech hours to keep their systems running properly. “When break-fix costs will exceed that of a managed program, or when there’s a recurring need for service due to the workflow or demands placed on the equipment, then it’s time to discuss making these costs known and manageable.” In other words, time to onboard the MSP side of the house.
McBain suggests you offer each technician going to a customer site on a break-fix call a commission to upsell new equipment or managed services or another recurring revenue program. “It’s a cheap marketing tool.”
Straddling the Line
Can you straddle the line and be an MSP who supports break-fix customers profitably? “We will absolutely fix broken things, even things that don’t deserve to be fixed [given the proper circumstances], but we make sure the client understands the compromise they are making,” Parisi says. However, he adds, “We really don’t have a business without monthly recurring revenue.”
Fast Computers is in a rural area in Ontario, says Kempt, and “the market up here is very much old-fashioned buy and own with no MRR,” says Kempt. “Many customers are break-fix only, especially smaller ones.”
Balsarotti serves many of those same types of customers in Missouri. “One size never fits all, and break-fix is unquestionably something that is best for some clients. Especially in industries when the PCs are not internet connected or are used to control specialty machinery where automated updates can cause expensive downtime. Extremely small businesses may find managed services are cost prohibitive versus their benefit to that client.”
McBain’s research on channel ecosystems discovered more reasons to keep an open mind about break-fix opportunities. “About 30% of companies are ready to pay a monthly fee, but the other 70% go the other way. They see MSP contracts as a type of insurance, and they self-insure and never buy those services. MSPs will keep growing, because current penetration is in the 10-15% range, but will top out at 30% penetration of the market.”
That trend will collide with the flood of PCs sold during the pandemic, and years before that, to the tune of about half a trillion dollars in hardware sold to businesses and government agencies. “PCs aren’t dying anytime soon as a market,” McBain says. “No market like that ever dies.” The average longevity of hardware tells him few things survive their three-year warranty and will need repair.
PCs, servers, printers, storage, and network devices always break. Will you answer the break-fix call? It could lead to a new MRR customer.