I had something that came up that was interesting on our member portal. We’ve got thousands of members who log into our member dashboard, and we’ve got this thing called The Queue, which stands for questions, updates, and exchanges. It’s a private member group, and a lot of great questions and discussions happen there.
But this one I thought, was interesting. And I’ll summarize, it was from Ron Rothstein, and he was asking about needing a good elevator speech, if you will, for managed services because he’s got clients that are paying for block hours, and he’s approaching them to switch to managed services. His question is, why should they sign up for managed services versus what they’re doing now?
Now, that’s not necessarily even the most interesting part of this discussion.
What I thought was interesting was that a member posted, “Hey, you don’t need to sell managed services to be proactive”. And her point was, you can do that with block hours. You can still deliver managed services and do it under a block hour contract.
And she’s right, you can do that. But my argument is you never want to sell block hours. There’s a couple of reasons for that.
Why You Never Want To Sell Block Hours
One is that block hours focuses the client on your hourly rate instead of the value that you’re bringing. And when they’re focused on the hourly rate instead of the value that you’re bringing, they’re always going to be worried about price. And then it invites price shopping because there’s always somebody they can find who’s going to do it cheaper. You want to charge $120 an hour, and they’re going to say, “Well, hey, wait a minute, Bob down the Street charges only $100 an hour. You’re a lot more expensive”.
So, they’re going with Bob down the Street, but what they don’t realize is Bob down the Street doesn’t know what the hell he’s doing. And so, he’s mucking everything up even though he’s cheaper or he might take three hours to fix something because he’s not as experienced. And now you’re paying for three hours instead of what could be done in one hour.
So that’s one of the reasons I don’t like selling by block hours.
The second reason is now the client feels like they must keep count.
Were you here eight hours? I thought I saw your guy going to lunch, or how did you really spend that time? Because some of it may be remote, and there’s no way for them to police that and know whether they’re getting overcharged for the hours or undercharged for the hours. And it just creates a situation where the client can be taken advantage of.
To my point earlier, when you are selling block hours, you’re incentivized to find more work and take longer because you’re getting paid by the hour, right? I mean, why wouldn’t you slow walk every fix? Why wouldn’t you give it to junior guys? You are going to take five hours instead of your most senior guy who could get it done in an hour. But he’s expensive, right?
When you explain this to a client about doing a managed services agreement where there’s a set number of services that you’re going to provide, and there’s a dollar figure they’re going to pay for that.
See, you are incentivized now to keep this network quiet, you’re incentivized now to be efficient and effective instead of it taking longer than necessary to do the job. So that’s another reason why block hours are not good for a client.
Because, again, if you get a dumb-dumb, you get somebody slow, you get a junior guy, et cetera, the client could end up spending a lot more.
The other reason for that is you do a really good job at running your business, you hire really good quality people. You have systems and processes in place. You know how to resolve tickets quickly. In other words, you’re really efficient.
Now, if you’re really efficient, that profitability should go in your pocket.
But if you’re doing block hours, you lose that advantage. You lose that profitability. Because now, like everybody else in the industry, Let’s say it would take them five hours to do a project. It takes you maybe four hours to do a project because you’re efficient. Good at hiring, good at managing, good at organization, all those things. So that profitability should go in your pocket because the values the same to the customer.
Again, these are reasons why I really don’t like selling via block hours. And if you want one final reason, again, when you sell block hours, it almost always invites a discount conversation. If your hourly rate is 150 dollars an hour, but if I buy 20 hours every single month, can I get a discount? They’re almost always going to ask for a discount.
I know you’re probably thinking, “what’s the answer to the how to sell managed services question?” Well, you’re going to have to watch How To Sell Managed Services (Part 2).
But I did want to make sure that you understood that selling via block hours is not always the best and the right way to do things.
I think that in some cases, selling some sort of a hybrid where there is a managed services agreement for a set very defined set of recurring services, and then any additional projects that need to happen are quoted on a project basis. And that way, the recurring maintenance gets done. The client knows that it’s going to get done. There’s a set price for that. But then any network adds, extras, changes, projects, and so forth you get paid for.
Because just like I don’t like block hours, the other thing I don’t like is the all-you-can-eat managed services agreements. Where it’s “all included” for one price, and it really isn’t.
Because if their entire network burned to the ground, like, physically, literally, the building burned to the ground. Or they had a ransomware attack, and you had to restore their entire network. A lot of MSPs that sell all-inclusive would go, “Hang on a second. We’re not doing that for just your managed services fee. That’s a project. You need to pay us more.” And the clients are well within their rights to say, “Hang on a second. You said it was all-inclusive. All I could eat.” You’re like the buffet line. You’re the Golden Corral of it all.
The answer to this is managed services.
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