Agreements: Monthly, Block Time, Per-Device (“Managed”)

Making an Agreement with an IT Firm

When you are looking to establish a professional relationship with any firm, you need to start by examining your motives for bringing this “other company” into your world. What are you hoping to accomplish? What do you expect out of the relationship? Is there a set of standards you are going to hold them to? Do you both know what these standards are? Do you understand what they actually provide? How can you if they are the experts?

These are all valid and in some cases hard questions. So maybe we need to take a step back.

Doing Business-to-Business Business

You are in business to accomplish your goals, whether these goals are altruistic and you are a non-profit, or these goals are focused on total global domination of a market segment. Your goals are easy to determine; their yours. You may not have them written out (that’s another blog post altogether), but you know your motives, and you trust you.

If you are looking to bring in a service company there is one thing we know about this company. They are for-profit. This may sound obvious but it should be stated. While they may be intrinsically altruistic, they have to make money to continue to operate; no one is donating money to their “cause”. They are paid to provide a service.

So What?

Well, this means that you need to examine what it is you pay them compared to what you expect out of them. I could sell you on lawn service for $1 a month, but you shouldn’t buy it if you actually want your lawn taken care of. No company is going to be able to take care of your grass for $1 a month. Assuming you don’t live in the desert.

IT as a Service

There are many different service models out there and for the most part each has their place. For us, the most commonly experienced agreements are Monthly Service Agreements, Block Time/Bulk Hours/Project Specific Agreements, and Managed Service or Per-Device Agreements. In my opinion, two of the three types can lead to great relationships while one will usually end sour.

Regardless of the agreement being evaluated, usually the customer-business establishes that there is an ever increasing need for assistance with their technology but not enough need to justify the addition of a staff member. Whether this need to just in desk-side support, establishing or supporting a server environment, moving software to the cloud, or just in dealing with other technology vendors (website, Point-of-Sale, Practice Management Software, printer service, telephones, internet, et cetera) doesn’t matter. In most cases, there is someone “taking care of computer stuff” already, but they are either a friend who doesn’t have the time to keep up or an employee who needs to get back to doing their primary job function.

So we see a fairly obvious need for the customer-business, someone to “take care of the computer stuff”. Now let’s examine the different types of agreements to see where we find a good fit.

Monthly Service Agreements

When engaging the service-business there should be a free of charge visit in the sales process to determine what the “computer stuff” actually is. If at all possible there should be a conversation with the person who was taking care of “stuff” beforehand. With these two pieces of information a fairly accurate assessment of monthly need can be determined and then a monthly rate established. This rate should not bankrupt the customer-business and still allow for the service-business to actually provide staff to accomplish the given tasks in the amount of time the rate assumes. When two businesses can come to an agreement here you end up with the customer-business getting appropriate care and the service-business getting appropriate investment. This can lead to staff from both organizations feeling truly collaborative getting work accomplished.

Block Time Agreements

Bulk hours are usually purchased for projects, these are fairly straight forward. When purchasing hours up-front for service however, things can be a little tricky. There should be an understanding between both businesses that the hours purchased can be used at any time when need arises for the customer-business and the service-business needs to be able to provide that service for monies that were taken in in the past. When dealing with a service-business that doesn’t have a good handle on cash-flow, these agreements can sour very quickly as the revenue was from a different time period and those monies might be spent. Nonetheless, the agreement is very similar to the monthly service, just with a finite number of hours. When using these agreements for service, there needs to be, a close eye kept on available hours so time doesn’t “run out” on the customer-business.

Managed Services

This is a more recent favorite of many customer-businesses as well as many service-businesses. The idea is essentially that a fixed amount of dollars is spent per technology device in the customer-business. A major weakness of this type of service because for the customer-business, in many cases their biggest asset is not the technology, but the people. If your people in their work create a larger value demand than the monthly price of the managed technology they work on you end up with the service-business at a financial disadvantage for that 1-to-1 relationship between employee and managed device. In larger organizations this weakness can be overcome as there are enough other devices without a user complaint to make up the difference. However, in smaller environments there is usually not enough other managed devices to overcome this hurdle.

For instance, if you have a small business with 5 devices and they pay $15 per device or $75 per month. If a single user has an issue requiring three hours of service labor, assuming a cost per hour for service of $20, 75% of your monthly service is used up. If that happens on the 4th of the month the rest of the month that service company is crossing its fingers that no one else has a question. The two businesses are no longer partners; the service-business now has a potential problem every time the phone rings.

Now if you have many devices, say 250 paying the same rate of $15 per device or $3,750 per month. Fifty users can have issues requiring an average of two hours each issue and assuming similar labor costs of $20 per hour, only 53% of that monthly budget is spent. Here the service-business can still be fully invested and engaged as their break-even is well ahead of them.

Conclusion

I believe if a proper relationship is established between two businesses, the monthly service relationship can be the most rewarding for both companies. The service-business can provide a value proposition to the customer-business that allows them to comfortable support the customer-businesses technology without getting uncomfortable. Especially when appropriate provisions are built in for dealing with overages and allowing agreement hours to roll over month-to-month.

In no way am I implying that the agreement you choose guarantees you a good relationship with a service-company. Sadly, a bad company is bad regardless of the agreement type. So in all things, spend time getting to know your service company before ever getting into an agreement with them, and any service business that is afraid to let you get to know them is likely not a business worth partnering with anyway.