And then there’s this: Many channel pros simply find break-fix pricing more lucrative than recurring fees.
Indeed, when newcomers to managed services crunch the numbers they often discover that their hourly earnings have dropped. “You’re making less money than you were making before,” Peterson says. Even Tinnirello, who is a strong believer in recurring fees, concedes that billing by the hour is more profitable. “It’s like 80 percent margin when we do it,” he states, noting that such occasions are rare.
They probably shouldn’t be, according to Peterson, who counsels MSPs to bill new clients hourly until their network and hardware are patched, secure, and running smoothly. That maximizes earnings during the labor-intensive opening months of a relationship while building trust you can utilize to pitch a recurring rate contract later, when the customer’s environment requires far less profit-sapping support. Babinchak, who requires clients to pay monthly for a limited package of basic maintenance services and hourly for everything else, sees break-fix and managed services as better together too.
In any event, veteran MSPs say, no one who likes recurring fees should ever feel compelled by circumstance to give them up. If keeping tabs on mobile gizmos has become a nightmare, for example, consider changing from per-device pricing to a per-user structure in which clients pay the same monthly sum for each employee regardless of how many endpoints they have. If customers using cloud solutions don’t understand why they still need you, do a better job of explaining it to them. Vendor management alone probably justifies the money they’re paying you.
“No one wants to spend two hours on the phone with a vendor getting basic questions answered,” Babinchak says. “We’re the intermediary between them and the vendors so they don’t have to experience that pain.”
Or you can try what Alex Ziogas, president of Chicago-based managed service provider AZBS Inc., does when customers question the ROI they’re getting from monthly payments: Print a report listing all the recent PSA tickets his team has closed behind the scenes on their behalf. “This is the reason you’re up and running, because we’re doing all these things,” Ziogas tells them. If that doesn’t work, he continues, go ahead and switch them back to hourly billing. They’re sure to ask for a return to recurring fees soon enough. “When they see how much it costs when something bad happens and they need 20 to 40 hours [of support], they’ll come back,” Ziogas says.
And if they don’t, there are worse fates than becoming a break-fix provider again. Indeed, that’s an alternative Simpson suggests anyone less than totally committed to managed services consider closely. “You can’t do this halfway and expect to be successful,” he says. If you’re not all-in on being an MSP, returning to break-fix might just be the smartest move of all.