Whether you're a break-fix shop that's re-evaluating your business model and considering managed IT services or you're a new MSP that's afraid to turn away any business you can get, reactive IT support is not the answer. In the following blog post, I'll explain how
- the two approaches differ
- break-fix contracts exhaust resources, prevent predictable revenue streams and jeopardize relationships with managed services customers
- MSPs can scale and grow their businesses by exclusively offering managed services
The Break-Fix Model
Once when I was younger and had a 101 degree temperature, my mom gave me a bell to ring if I needed anything from her. Yes, I know my mom is an angel for doing so. All I had to do was ring it, and she'd drop what she was doing to make sure everything was OK. Now imagine multiple bells ringing at once. That's the essence of break-fix services. You never know when disaster will strike or when a client will need help with their email, for instance, but you come running anyway.
With break-fix, customers don't pay a fixed monthly fee for your services. They're used on an as-needed basis. If a client's computer system breaks, your techs must rush to their side to fix the issue - hence the name. The customer is then billed for how many hours it takes to complete the project. These arrangements, typically associated with Value Added Resellers (VARs), also tend to be more short-term in nature. Many SMB clients will opt for this model if their network infrastructure is simple or requires little maintenance.
The Managed IT Services Model
Then, you have managed IT services. In this model, managed services providers (MSPs) proactively monitor and protect clients' networks to prevent vulnerabilities from developing into full-blown IT crises, the kind an MSP offering break-fix services wouldn't be able to address until it reached this critical stage. Using an intelligent remote monitoring and management (RMM) solution coupled with a Network Operations Center (NOC), MSPs are able to detect and resolve these threats early enough that their end clients don't know there was an issue and don't have to worry about downtime. Unlike break-fix, managed IT services providers are able to provide their clients with a full suite of IT support, including network monitoring, backup and disaster recovery (BDR), email management, and 24x7x365 help desk services. Additionally, clients pay a fixed monthly fee for their packages so MSPs have a steady stream of monthly recurring revenue (MRR). This is a more scalable cash flow model that allows the end user to better budget these costs and enables the MSP to predict future revenue.
The Advantages of Being a True MSPConsider the immediate benefits of becoming an MSP and ditching break-fix. First, the monthly recurring revenue model means you'll get paid each month regardless of whether or not there are any alerts. This allows for better business planning. Since you know each of your monthly recurring costs, you can determine how many clients or subscriptions you'll need to remain profitable. Unpredictable spikes in demand with break-fix require you to have enough techs on staff to deploy when emergencies arise. It doesn't take much convincing to realize this is an inefficient allocation of resources. What if there are more issues than techs? You're already likely short-staffed and tight-budgeted. You have a fixed amount of employees that you're responsible for paying each month, but have no way of determining how there services will be needed or what revenue you'll make in a given month. That's just not scalable. You should be focusing on how to grow and receive higher margins, rather than how to keep afloat. Then, there's the idea that with managed IT services, you can build better, more long-lasting client relationships with upsell and referral potential. Clients will value your role as a trusted business advisor because your fully managed IT support will reduce, often eliminate downtime.
Why Offering a Hybrid Combination Reduces Service Levels and Leads to Customer Dissatisfaction
Still, SMB clients may not always buy into this more proactive business model. To compromise, many MSPs settle for offering a hybrid portfolio, mixing break-fix with managed IT services. We often see this with MSPs who have already made the leap to managed IT services, but haven't transitioned their legacy break-fix customers because they're afraid to give these clients an ultimatum. MSPs that are strapped for cash may also take on these accounts for extra revenue. Either scenario is growth-inhibiting. You must, for once and for all, break away from break-fix entirely.
In Business Solutions Magazine's article, The 4 "Nos" That Lead To More Profitable Managed Services "Yeses," Jay McCall explains how one MSP, Acumen IT, discovered offering both services was unprofitable after asking the following questions:
- Which customers require the most/least labor support?
- Which customers were the best/worst at paying on time?
- Which customers only called for infrequent IT projects vs. the ones that were on managed services contracts?
While every business is different, I encourage you to ask yourself these same questions to determine which clients to prioritize.
And that's the underlying issue with offering a hybrid portfolio. Ultimately, someone suffers! If your team is out servicing your managed services clients, then they can’t respond to the break-fix clients. What’s worse, is if your technicians are out servicing break-fix clients and your managed services clients run into an issue, you then have to make a choice to either
- pull a team member off the break-fix client to service the managed services client
- put the managed service client in a poor customer service scenario by having them wait
Obviously, neither are ideal. In another Business Solutions Magazine article, 3 Common Culprilts for Missed SLAs Solved, McCall reminds us that the service level agreements you make with managed services customers not only must include what services will be managed by the MSP, but also "how quickly IT problems such as computer or network downtime are guaranteed to be resolved." When you enter into an agreement with these managed services customers, you're setting the standard for your service delivery. Offering break-fix services makes it harder for you to meet this standard, and your higher-paying managed services customers end up suffering.
How likely do you think they're going to want to continue working with you, purchase more solutions from you, or recommend your IT support to a colleague when they can't count on you because all of your techs are busy being low-value repairmen?
Even if you are able to meet these two types of SLAs because perhaps you leverage outsourced IT support like a help desk to handle your managed services customers' concerns and send techs to break-fix clients sites, it's still not a valuable use of your staff's talents and energies. Break-fix clients don't have standard IT infrastructure, and techs usually spend a great deal of time troubleshooting because they first have to understand these clients' various network configurations. What's the opportunity cost of this? These techs are then prevented from building stronger relationships with their managed services customers, which could lead to higher margins for the MSP.
So what's the moral of the story? If you're a new MSP that's still serving the break-fix customers that have been with you from the start, it's time to have that conversation. You can't grow with this new business model if not all of your customers are on board. Similarly, avoid the temptation of accepting new break-fix clients for the financial cushion. In the end, it's about the long-term goal, not the short-term rewards.
- 3 Ways to Manage Potentially Non-Profitable Clients: Better Call an MSP
- So You've Moved to Managed IT Services...Now What?
- The Top 5 Selling Points for Managed IT Services
Other than resolution time, what else should your SLAs cover?
By Carlos Borges
By Ray Vrabel