How to Transition from Break/Fix to Managed Services and Recurring Revenue

Karl Palachuck, author, Cloud
Karl Palachuk, author, Cloud Services in a Month

Many partners have built a business based on break/fix work: trading dollars for hours. Break/fix is a great business model, but in the era of Cloud Services, there’s a much better alternative—managed services and recurring revenue.

The big question is, how do you make the move from break/fix to managed services (and recurring revenue)? Do the “managed services two-step”!

How to make the transition

The most important thing is to realize that managed service is not simply a pricing model. It’s very difficult to take clients who are addicted to reactive service and convince them to move to a flat-fee pricing model.

The first step is to get clients to commit to ongoing maintenance-based support. That means you make sure their machines are always patched and updated. You manually install every patch and update from Microsoft, Adobe, Dell, HP and everyone else. And you bill them for it!

A maintenance-focused business is a great mid-way between break/fix and managed service. The most important feature is that you move both patching and invoicing to earlier in the process.

Diagram One shows the flow of events in a classic break/fix business model.

As you can see, the defining factors of a break/fix relationship are that: 1) Something has to break in order for you to make money; 2) The client is guaranteed downtime; 3) You get paid at the end, potentially 30 days later.

When you make the switch to a maintenance-focused model, you are still technically break/fix, except you’re being paid to do the important work that keeps things from breaking. See Diagram Two.

With the maintenance-focused model, you apply all patches, fixes, and updates to all hardware and software every month. This monthly maintenance is easy to talk clients into, and is obviously in their best interest.

Note two important differences from the classic break/fix model. First, it moves a predictable amount of labor to the beginning of the cycle. And, because you’re working on an on-demand basis, you can invoice for the preventive maintenance right away. Note that this may or may not involve the use of an RMM (remote monitoring and management) tool.

Second, as the month proceeds, things might still break, but problems will be fewer and the invoice for them will be smaller. The overall effect is that you have moved your income earlier in the process and made it more predictable.

Juxtapose fixed costs with added value to convince your clients

Let’s say that monthly maintenance is one hour per month for a server or virtual server, and an average of fifteen minutes per desktop per month. You can estimate these costs and deliver them on a regular schedule.

With this model, the client enjoys more uptime. You probably make about the same amount of money, but you get the money sooner and have fewer “emergencies” over the course of the month.

While it’s hard to convince break/fix clients with erratic invoices to move to a flat-fee pricing model, it’s much easier to convince clients who have gotten used to a monthly preventive maintenance visit. These clients see the value of preventive maintenance because they have fewer problems.

Once clients get used to receiving regularly scheduled maintenance and paying for it, then it’s much easier to move them to a flat fee service plan. This makes their technology spending much more predictable. For you, it has the added benefit of getting paid in advance.

Hence, the managed service two-step. First maintenance, then managed service. You should also include as much as you can in the bundle so that the “additional invoices” are as small as possible.

Karl Palachuk is author of Cloud Services in a Month and a thought leader in the MSP channel who blogs at Guest blog submitted on behalf of Sherweb. Read more Sherweb guest blogs here.