Due to thought leadership from organizations like Service Leadership and Gary Pica, more and more MSPs are moving to just offering fixed price contracts (one form of Pure Play MSP). Many have done son to the extent of firing clients that won’t move to that model. But is pure play really the best option?
There are certainly many real advantages to offering only fixed price contracts. Here are some of the advantages touted by its proponents:
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The support equation is simplified and therefore more profitable. The MSP is incented to make environments as stable as possible by homogenizing environments and doing more preventive maintenance to reduce support hours.
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Easier agreement management. Managing agreements is typically a large undertaking and with fewer agreement types to manage, this job is simplified.
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Obtaining client approvals for preventive work is easier. You don’t have to obtain the client’s permission to do preventative maintenance thus eliminating a large account management task.
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Client and MSP interests are aligned in that both are incented to keep the network up and running. Both feel pain when trouble arises, and both are happy when things run smoothly.
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Statistics presented by proponents of offering only fixed price agreements indicate that the most profitable MSP’s offer only fixed price contracts.
These are all compelling reasons. But we took a different approach at my last MSP and it was a bet that paid off handsomely. Our thinking was that being flexible in how we engaged our clients gave us a competitive advantage in winning new business. Especially in co-managed environments. The downside of offering fixed price and flexible labor contracts is that it significantly complicated our internal operations. It was not just the additional work of managing multiple agreement types, it was having to manage two diverse types of clients with two different service delivery philosophies and two different sets of expectations.
One small example: Effectively managing credits is a critically important task in a per diem/retainer environment, but much less of a factor in a fixed price world.
It was certainly our goal to move clients to a fixed price contract over time. But initially we were able to put prospective clients at ease by offering flexible retainer agreements for labor paired with various levels of Managed Security offerings including security, managed backup and disaster recovery, and cloud solutions a la carte. By the time I sold my MSP, our labor was divided with about 60% fixed price and 40% variable contracts.
Our thinking was that by doing something well that was hard to do, we would gain a competitive advantage. Difficulty in and of itself is a barrier to entry. And it proved to be true.
The primary advantage of our approach was that we elevated our competitive game. Big time. Not only were we able to serve a much larger audience than pure plays could, but we also competed very effectively against pure plays in their core markets due to our flexibility.
Our approach enabled us to grow one of the largest organically grown MSP’s in the country. We were ranked 50th in the world on the MSP 501 and our client and employee retention numbers were best in class as was our adjusted profitability at 18%.
The sales advantage is clear, but how did we make it work operationally? The key was investing in automation and identifying and managing the drivers of quality and profitability to overcome the added complexities efficiently and gracefully.
Our internally created software suite overlaid our PSA, RMM, CX and security stack and touched every part of the business: Tech performance, scheduling, procurement, sales, endpoint management, documentation, financial and strategic.
Our software, of course, is extremely transformational for pure play MSP’s as well. It is just that if you are contemplating changing your business to a pure play, or struggling to differentiate yourself from your competitors, we offer something worth considering. Either way, contact us to explore how we can help transform your MSP to grow faster and become more profitable in a crowded, commoditized world.
