Selling Managed Services

Chris Martin

Yesterday, we took our one-year-old daughter for a day out to a local fruit farm and tried to go to their play complex.  I asked ‘how much to take our kid in’? 

‘We charge £4.25 per adult’ said the attendant, I said, ‘Sorry, did you say £4.25 per adult’, making a quick calculation that it would cost me and my partner £8.50 to take our one-year-old child in (who was just about due for a sleep). 

Consequently, it was somewhat likely she’d be tired after 20 minutes and the money would be wasted.

I was really irritated by their pricing policy.  So much so that I filled in a complaint form and stuck it in the box.  Then I ‘tweeted’ it and because my ‘tweets’ appear on my Facebook, twenty or so of my friends responded with other negative comments about their pricing.  And because I’ve got a bunch of friends on Facebook I presume many of them read it.  And, no doubt the friends of my friends read their comments also.

Anyway, I was lying awake that night trying to work out the implications of that pricing strategy, when I got round to thinking about my own industry – IT guys.

In general, nobody has a problem paying in return for some value, so I jumped out of bed and wrote down all the things my customers paid me for (when I was an IT guy).

  • Fixing IT problems fast.
  • Doing minor changes before they were required, eg:  new starts, etc
  • Uptime!  Keeping things working as they should be, almost all the time.
  • Keeping capital investment at bay by excellent pro-active maintenance.
  • If it was needed, advising on, offering to purchase and supply new equipment and installing it with the minimum of fuss and inconvenience.
  • In the case of third party software problems – at least ‘owning the problem’ until it was fixed (even if I couldn’t fix it myself).
  • Giving good long term IT advice, reducing costs, increasing their return on their IT investment, adding to scalability and efficiency of my customers business.

So, how I made my money when I was an IT guy was… I charged them by the hour which made it worth my while to fix things slowly and it rewarded me for not getting things right first time.  I also liked it when things went faulty because it was extra hours work and maybe if I couldn’t fix it, I could sell them new equipment and earn money on the kit and installation.  I installed things during the working day because I played football at night and baulked at doing other people’s dirty work for them- ‘it’s not the server, it’s the ISP, you need to speak to them.’

Actually, I’m only joking, but I know plenty who do.  And as you see, the way their IT business is set up to earn its money is diametrically opposed to what their customer wants.

In order to align the IT guy’s needs to be paid and their customers’ needs better – I’d say that charging a fixed fee (selling Managed Services) for doing the above is a somewhat suitable method.  I’d say there are better. How about a fixed monthly rate which more or less covers the costs of the IT guy for doing the work and the rest as rewards for meeting and exceeding the things your customer really want?  (Beware this will involve measuring them and some investment in systems).

Essentially, it should really pay for you to truly understand the needs of your customers and if you can measure and deliver what they want,

(a) they’ll like you a lot and tell their friends

(b) they’ll understand why you’re good versus your competitors

(c) and hopefully they might even agree to some extra incentives based on your performance against their needs

(d) and most customers I know want the same thing – so its repeatable/scalable and unique.

So, going back to the fruit farm example:  My needs were:

(a) my daughter has a lot of fun and grows confident playing with new things and new environments

(b) Our family leaves happy and looking forward to our next visit

(c) We’d probably tell our friends how great it was and perhaps we’d even consider signing up for their season ticket.

So, what would have been the best pricing for me?

‘Hey, its two pounds to get in and our ‘smile-ometer’ and ‘shriek-ometer’ will measure how much your kid likes it and we’ll charge £1 for every 15 minutes of happiness’.  Now, that might be farfetched with regard to a kids play-complex (or is it?) but it’s certainly not difficult in the world of IT (especially given that GFI MAX is to some extent already the IT ‘shriek-ometer’).

2 Comments »

  • John Mello says:

    The debate over hourly rates versus fixed fees is one as old as money itself. While races are won by the swift, when getting paid by the hour, the greatest short-term rewards go to the tortise, not the hare. In the long-term, though, customers are more likely to hire vendors who get the job done fast and well. On the other hand, customers have been known to change their requirements for a project in mid-stream. That can turn a fixed fee job into a costly proposition for a vendor. In those cases, hourly compensation schemes can keep a customer focused. They’ll be less likely to tinker with the specs for a job if their alterations cost them money. Fixed fees can obscure to the customer how much work is actually involved in a job. If a vendor goes about his business honestly and customers are sensitive to labor demands of a project, then the compensation issues will work themselves out in a way satisfactory to all parties involved.

  • Hi John.

    Thanks for the reply. You’re right of course, how you get paid has an important bearing on how well you do and can do your job.

    I was more thinking of support on a fixed cost basis with increments for a) really understanding this speed, communication and advice thing is important to the customer.

    On a longer project, I think all things considered a fixed fee is better as you’re unlikely to get the job by refusing a fixed fee.

    I ran a support company previously and we did managed services for support and anything which was more than a change, support request was covered by a project fee, eg: supply & install a new PC/Small business Server network.

    Thanks for the comment and keeping me on my toes.
    Chris