Managed service agreement concept

[dave-northoaklandtech]

I'm thinking about offering a "blended" service contract. I focus on smaller business clients that fall under the threshold of a standard managed services contract (my smallest MSA offering is about $2500 a year. This is for clients that don't hit that number).

I'm thinking about offering a service contract at 20/40/60/80 hrs per year of service that guarantees a billing rate for them and is billed monthly. So, client Bozo signs a contract that guarantees he'll buy 20 hours of service in a year. I give him a preferred rate which totals to $x.00 per year. I then bill him 1/12th of that number every month. If Bozo bails on me, there's a $1,000 cancellation fee in the contract.

Pro: Customer gets a cheap billing rate. Con: My revenue per hour drops.
Pro: I get steady income. Con: Lower cash flow.
Pro: I've got a contract in place. Con: Customer could probably just walk away.
Pro: Customer feels like they should use the hours they're paying for. Con: I have to work the hours the customer is paying for

I've run this by a couple of customers and they seem to like the idea. I'd like to get some informed opinions and thoughts about it. Am I making a horrible mistake? Or am I a genius who's about to hit the lottery?

Thanks,

Dave

 

[MrMille]

What discount do you give?

 

[dave-northoaklandtech]

I'm pricing this way: 20hrs- $115/hr, 40hrs - $105/hr, 60hrs - $100/hr, 80hrs - $95/hr and 100hrs - $90/hr. There are also adders for monitoring and quarterly maintenance and also a discount if the customer prepays 2 months. If they use the hours up, we sign a new agreement or they go T&M instead of monthly billing.

 

[Nathan H]

I'm thinking about offering a "blended" service contract. I focus on smaller business clients that fall under the threshold of a standard managed services contract (my smallest MSA offering is about $2500 a year. This is for clients that don't hit that number).

Silly question Time but what do you mean by MSA?
and T&M??

Personally I think you have thought this through logically, and your more under the heading of Genius than a mistake maker.

Your customers get the benefit of having you as an insurance policy, they never want anything to go wrong with their It stuff but its nice to know your there just in case and as an added bonus in essence they get a full time IT guy with out the full time IT Guy expense.

Just a suggestion but i always give a service and perform a back up as part of their first payment, make life easier for me in the long run.

 

[tkrabec]

I'm pricing this way: 20hrs- $115/hr, 40hrs - $105/hr, 60hrs - $100/hr, 80hrs - $95/hr and 100hrs - $90/hr. There are also adders for monitoring and quarterly maintenance and also a discount if the customer prepays 2 months. If they use the hours up, we sign a new agreement or they go T&M instead of monthly billing.

My only suggestion would be to save the larger discount for larger hourly packages, ie 20-115 40-110 60-105 & 80& 95 or something similar, the other option would be don't discount the labour, but offer some "free" hours ie buy 18 hrs get 2 free, buy 35 hours get 5 free, then you are not discounting your hourly rate, and you are using the "free" trigger.