In my previous two articles, I’ve shared my thoughts on why should you move to the managed services model and also written on how to understand which of your existing clients will move to managed services.
But for many IT solution providers that are currently selling their time on a break/fix basis — ad hoc work with clients — the move to becoming a managed service provider and selling flat-fee “all you can eat” contracts can feel like a massive leap.
We’ve explored how some clients are often far too comfortable with the concept of buying time rather than paying for value, and so selling them a MSP contract can feel like a real struggle.
With these types of clients, how can you slowly move them toward a managed service model without taking the direct leap into flat-fee payments?
The answer may be block-time billing.
What is block-time billing?
A block-time arrangement may be a good initial step to helping the client understand that their IT shouldn’t only be given attention when things have gone wrong. Rather, it needs continuous attention to prevent things going wrong at all.
A block-time agreement is where an IT company sells and bills their clients upfront for blocks of contracted time (say 10 hours) and then decreases that block of time every time they do work on the client’s IT infrastructure.
I know of some IT companies that sell their block-time annually — perhaps 20 hours of support a year, before the arrangement is renewed. Others sell block-time that never expires and can be used when needed.
How do you benefit from block-time?
Is your IT business a good candidate to move to a block-time agreement?
One of the biggest benefits of selling a block of time to a client upfront is that you eliminate one of the biggest challenges of break/fix work — getting paid for work done for the client.
With a block-time agreement, you bill the client upfront for a block of hours, and every time you do work for the client, those hours are reduced. No more waiting around for invoices to be paid after each job.
Block-time agreements help IT service providers get compensated for all of those tiny bits of work you’d otherwise do but never bill for @tubblog @SmarterMSP
A block-time agreement also gives you the opportunity to effectively get compensated for all of those tiny bits of work you’d otherwise do but never bill for.
If you’ve ever had a client telephone you for some “quick advice on a new laptop computer,” then you’ll know it’s both uncomfortable and difficult to charge for that advice. But with a block-time agreement, you can reduce the client’s block of time accordingly. You’re now getting paid for the time you would have otherwise spent offering free consultancy!
Block-time billing also gives you the opportunity to do necessary and important work for the client that they would otherwise neglect. One example is backups. Most clients don’t see the value in backups — until it’s too late.
With a block-time agreement and the “bill” already paid, clients are much more open to the idea of you going ahead and fixing their backup setup.
At this point you may have the dawning realisation that what you’re actually doing with block-time agreements is educating the client on two things:
- That their IT needs to be monitored and maintained
- That they need a regular budget for IT
If that sounds familiar, it’s because it’s a solid tenet of what managed services is!
You can use block-time agreements to help change your client’s mindset about why their IT is important and why a managed services agreement may benefit them.
If you’re struggling to make the move from ad-hoc break/fix work to a flat-fee managed service agreement, perhaps because your clients are stuck in the mentality of only paying for your time rather than the value you provide, then moving to block-time agreements may be the way forwards.
With block-time billing in place, you can eliminate administrative overheads associated with multiple small bills to a client; you can get paid upfront for work — eliminating late payments; and you can start to capture billing for all of those small client requests that you wouldn’t normally bill for.
From the clients’ perspective, they will start to see that IT needs to be monitored and maintained, and that they need to regularly budget for IT, too.
Pretty soon, they’ll probably come to the conclusion that some sort of flat-fee model for billing will benefit them. Now, do you know an IT company that could help them out with that?
Photo: Shaun Derby/Shutterstock.com
I totally agree that is more cost effective to hire an IT technician or company to give regular maintenance instead of waiting for something to break down to call the technician. Waiting until last minute could even incur in losses for the business.
Lewis — absolutely! I’m glad you see the value in the approach of Managed Services.
We are trying to move exclusively to Managed Services. What would you say to our experience that block-time clients almost ‘never’ convert to Managed Services. We’re finding it’s almost better to bill hourly, but continue to stress needs and our desire to maintain their systems properly rather than break fix. Once a client moves to prepaid hours, they seem to treasure those like chocolate kisses and question every deduction – so not only do we not get a chance to serve them well – it is almost impossible to convert them. Many of them are really not a ‘bucket C’ client, just simply hypnotized by false value proposition of the ‘debit card/block-time’ concept. Is this a sales problem, or is it logical for us to blame the block-time concept as the conversion problem?
Frank — thanks for the feedback. If a client doesn’t value IT and see it as a cost, rather than a benefit, then you’re always going to have a hard time demonstrating the value of Managed Services to them.
For those clients you have on block-hours now, be aggressive in two areas:-
* Making proactive suggestions for maintenance
* Recording every minute you spend helping them — all those “this will just take 5 min” calls, the advice, “can I pick your brains”, quick fixes… everything!
It’s my experience that once clients see how much of your time and experience *actually* need to be undertaken to keep their systems working well, they start to see the value in a flat-fee Managed Services contract.
If they don’t… then they are a bucket C client and you might look to replace them with a more progressive thinking client.
[…] to switch, another option is to keep them on while raising their rates and steering them toward block-time billing as a stepping stone. Just keep in mind, the highest performing MSPs have gotten to where they are by standardizing […]