IT and Business Insights for SMB Solution Providers

The Break-Fix Empire Strikes Back

Is hourly billing making a comeback? By Rich Freeman

Whenever he loses a sales fight, Vince Tinnirello asks to see a copy of the winning bid with the victor’s name and contact information blanked out. And lately he’s spotted hints of a disturbing new pattern: IT firms successfully wooing clients by charging low hourly rates for services rendered rather than recurring monthly fees.

“I’ve seen it happen a handful of times,” says Tinnirello, who is CEO of Anchor Network Solutions Inc., an MSP in Lone Tree, Colo., near Denver. “It’s frustrating.”

Once upon a time, of course, break-fix bids like that were the norm, but over the last decade momentum within the SMB channel has been solidly in the direction of managed services billed at a flat monthly rate. Tinnirello’s experiences aren’t the only sign that a swing back in the other direction may be underway.

Just a few months ago in this very magazine (July 2015), in fact, Joe Gleinser, president of Austin, Texas-based solution provider GCS Technologies Inc., and one of this year’s ChannelPro 20/20 Visionaries, argued that on-demand billing is a better fit than recurring rates for an age in which cloud computing vendors like Amazon and Google are making long-term commitments a thing of the past. “The managed services fixed-fee support model is a relic of a different [albeit not so long ago] time,” he wrote.

And he’s not the only one who thinks hourly billing is making a comeback, either. “Absolutely, it’s occurring,” says Josh Peterson, CEO of Naperville, Ill.-based channel partner advisory firm Bering McKinley.

Are they right? There’s no quantitative evidence one way or the other, but managed service experts have no shortage of explanations for what may be occurring, and why.

Headaches and Pushback
Erick Simpson, for one, suspects that some channel pros who found becoming an MSP harder than expected may be reverting to their break-fix ways. “It’s probably really easy for that kind of an organization to go back to what they know and what they’re comfortable with,” observes Simpson, who is vice president of SPC International Online Inc., a managed service training and consulting firm based in Santa Fe Springs, Calif.

Other MSPs could be struggling to make per-device pricing schemes work in the mobile computing era. “Years ago it used to be pretty simple,” says Amy Babinchak, owner of Harbor Computer Services, an SMB solution provider headquartered in Royal Oak, Mich. You just counted up a given company’s desktops and servers and multiplied the result by your standard rate. These days, however, end users are bringing an ever-shifting array of smartphones and tablets to the office too, and keeping track of them all can be a major headache.

Per Gleinser, cloud computing may be a contributing factor as well. Many managed service providers report that companies with fewer on-site servers and applications to maintain are starting to question whether they even need an MSP anymore. “We’re hearing that question from clients constantly now,” Babinchak says. Though her firm has yet to lose an account over that issue, she suspects that some providers worried about losing business are responding to such pushback by offering to charge customers by the hour again.

About the Author

Rich Freeman's picture

Rich Freeman is ChannelPro's Executive Editor

Comments

One option not covered [which our firm has found to be very successful] is a Retainer Base. This provides a baseline SLA at a very reasonable cost and allows for peak demands with predictable costs. Really surprised that this is not more common [also glad, since it is a differentiator that often causes clients to select us over competitors]
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