MSP Secrets: Why “fixed rate” IT services may not benefit customers
Why do MSPs push “fixed monthly rates”? Simply, because it makes them more money. It’s all about maximizing monthly reoccurring revenue (MRR) for many IT companies; that is, how much money they can squeeze out of their customers each month.
Fixed rate plans create situations where, in order to maximize profit, there is significant incentive for the Managed Service Provider (MSP) to do the minimum possible to keep their customers onboard.
Another issue with fix rate billing comes to how things are priced. Think about it this way: if you were to quote a fixed rate service to a customer, what price would you put on that service? You’d probably price it so that not only do you not lose money, you’d ensure you make a profit 96 or 97% of the time. That means the vast majority of the time, your customers are going to be overpaying for the service that they receive.
Things to watch out for
MSPs who push fixed monthly rates may limit their scope of service significantly. Take a close look at the contract and ensure that what you need over the next year (and beyond) is covered. If new staff, project work, office moves, etc. are in your company’s plans but are not covered in the services included in the contract, then you will need to budget more funds to cover these “extras”.
Fixed rate plans may also have long contract terms with strict cancellation policies. Ensure the length of contract is suitable to your needs, not just the MSP’s needs.
A great alternative to a fixed monthly rate contract is a hourly contract with a broad scope and a defined annual budget. This is like the budgeting process of almost any internal IT department – they let you know what they’ll do for you and be accountable for an annual budget. The benefit to you is that then you’re only paying for the service that you’re utilizing.