Most Managed Service Providers (MSPs) have a fixed monthly fee as part of the contractual agreement. This monthly fee usually covers a core set of services, such as managed antivirus, patching, alerting, monitoring and possibly strategic consulting for the information technology (IT) environment. Services above and beyond the core services are usually provided on an hourly or fixed-fee depending on customer preference. We are going to look at these various aspects of MSP agreements.
All the labor service that an MSP does can be broken down into these four major categories:
Since most MSPs include “Strategy” and “Maintenance” types of activities as part of a fixed fee regardless, let’s explore various managed service provider agreement structures, particularly looking at items 3 & 4, “Support” & “Projects.”
Almost all managed service providers will offer options in how the contractual agreement is priced. In other words, if you want to pay-by-the-hour for technical support, you can. However, this is something that you may want to reconsider because this can cause problems. Consultants and smaller managed service providers often price their IT support this way.
These are the two biggest problems I notice with the pay-by-the-hour MSP agreements:
Problem #1: Billing issues - You must take extra administrative time to manage all the bills each month. Since each month, you must review and approve invoices, this can eat up hours, counting the costs and managing your IT budget. This can lead to using the vendor's services less, so problems fester and ultimately your workforce is less productive.
Problem #2: Unpredictable monthly costs - Organizations can find it difficult to budget and plan when IT spend varies considerably from month to month. This forces you to pull funds from an emergency budget pool for a function that is considered an operational expense to run you business.
Problem #3: Bad IT - Your IT provider is only rewarded when your technology fails. This incentivizes bad behavior. This is risky. The only way to cover for this risk is if the MSP guarantees, promises, or statistically proves that they are solving problems in such a way that drives down noise in the computer network.
To solve these issues, MSPs started offering a productized services model giving you unlimited IT support services for a fixed monthly fee. This means that not only is business IT strategy and systems maintenance included in the fixed fee, but so are IT support services. This encourages greater use of the helpdesk because you don’t have to pay anything extra when you use the helpdesk. And these are the very reasons why customers like utilizing a fixed monthly fee pricing model.
The two biggest problems with hourly billing (outlined above) disappear when IT support is included in a fixed monthly fee.
Managed service providers have been offering support included in the fixed monthly fee since the emergence of the MSP industry. But including projects in the fixed monthly fee is something rather new. Let's explore.
We identify IT project services as any labor involving a move, add, or change to the customer network. This could include things, but not limited to, server migrations, workstation builds for new employees, and infrastructure builds.
Most MSP contracts don’t include IT project labor in the fixed monthly fee. Instead, it is priced hourly. If a project takes 30 hours, then the customer is billed for 30 hours of labor. If the project takes 80, then the customer is billed for 80 hours of labor. There is no guarantee that the vendor will work efficiently or inefficiently.
This is the industry standard, for example, if you need an employee added to your environment, this would be classified as an "add". Not only will your IT support engineer add your employee to your network and set your new team member with a computer that will have to be scoped, purchased (or wiped if using a used machine), built (or rebuilt), and delivered, you will pay for the hardware AND the hourly project services fee will get billed to you as well, sometimes as much as $225/hour depending on how complicated the security clearances might be for that employee in your network environment... That is UNLESS IT projects are included in the fixed monthly fee.
Not all MSPs are willing to offer a productized IT service that also includes unlimited project hours. The reason being, more of the risk is now on the IT provider. But now, you have certainty that you have all the support you need to get things done right. If you keep coming back to the IT vendor with projects, they might see this as losing money, but a mature MSP will gladly take on the work. They know the value of driving out noise in a computer network.
MSPs who have several clients in your industry should be able to average out all the labor costs over the course of years. This allows them to factor all project service pricing into the fixed monthly fee.
Interestingly, the more an MSP moves into a model where all labor is included, the better IT gets for the customer. Earlier I outlined some benefits that come from taking the IT support function to a fixed monthly fee model. Those very benefits get even better when you also add IT project labor.
Your managed IT provider may be willing to write up a new agreement that includes more of the labor costs into the fixed monthly fee. Granted, that fixed monthly fee will be larger, but if your provider offers competitive pricing, it’s usually always going to be a better deal in the long term.
Sometimes just exploring a new pricing model can make it much easier for both the customer and MSP. If you are not a customer of Endsight and would like to discuss what that might look like, we are always happy to have that conversation.
Note: This article was originally published by Samuel Hatton on November 20, 2020 and has been updated and made current by Samuel Hatton on February 2, 2022.