Saturday, September 08, 2007

Managed Services in a Month - Part Four

[ KP Note: The entire "Managed Services in a Month" series has been collected, collated, and indexed. Still free. You may access it now at ]

Context: This post follows on the previous four.
Start at and work your way forword from there.

Note: The response to this series has been overwhelming. Lots of people have emailed me. They're taking the challenge.

Don't forget to email me when you sign your first deal!


Today's Topics:

- Write a service agreement and have it reviewed by an attorney

- Print up your new pricing plan

Topic Five: Write a Service Agreement and Have It Reviewed By An Attorney

Oddly enough, I'm not going to spend a long time on your service agreement.

I could go on and on about why you need to do this, how important it is, and why you shouldn't wait.

But way back in the first post in this series, I promised to get to the point. So here it is.

The point is: Just do this. Don't delay. And don't even begin to form an excuse.

If you want to be a Managed Services Provider, you need a service agreement.

Thousands of businesses do this every day. It's the easiest thing in the world. Just do it.


Your life will be a lot easier if you don't start from scratch. Use a template. There are plenty around. Some managed services software vendors can give you a sample. (Of course, early on you were instructed to buy my book or Erick Simpson's book, so you've got templates there as well). I think there's even one somewhere on the Microsoft site.

But the "secret sauce" isn't in the template. If there's a secret sauce, it's in your intimate understanding of your business, your clients, your rates, your policies, and how they all work together. No one but you can outline your service agreement.

Notes on Lawyers:

Yes, you have to use a lawyer.

If the lawyer says she won't start with your draft, but wants to work from scratch, find another lawyer. 99.9% of all lawyers now subscribe to services that provide them with generic forms to customize. Starting with your draft isn't dramatically different from this.

In the case of drawing up a service agreement, a good lawyer will take a "template" and then interview you and find out what's important to your business and how it should be incorporated in your agreement.


Review and review and review.

Remember a couple of assignments back when I said you needed to carry a pencil and paper? Well, it should be full of notes related to pricing, plans, clients, and everything else.

Put it all together the best you can. But don't put it off until it's perfect. It will never be perfect. Finish it, take it to a lawyer, and get it approved for consumption. Then print it up and get ready for client interviews (next lesson).



Yes. Lawyers cost money. Hundreds of dollars per hour.

Guess what? Technical consultants cost money. Hundreds of dollars per hour.

You are going to have to lay out some money here. But think about it this way: ONE client will pay for your lawyer to review this service agreement. And if she finds that you have two contradicting sections, or tried to enforce something that's not allowed in your state? Well, they it's all money well spent.

[ Insert whatever justification you need here. ]


Topic Six: Print Up Your New Pricing Plan

We talked before about your price list. See Part Two in this series.

There you developed your now-famous three-tiered pricing structure.

Once you've absolutely settled on what you're doing to do with pricing and the three tiers, then you're ready to print it up, hand it to your staff, and get ready to show it to your clients.

Legal note: Make sure your agreement can be amended by a 30 day notice from you regarding pricing and what's included. You'll actually attach this 3-tiered pricing handout as the final page of your agreement.

Make it nice and professional. If you're not good with Word tables, find someone who is.

Here are a few notes on pricing:

First, state your non-contract rate (e.g., $150/hour standard; $300/hr after 5PM or on weekends). This makes your labor rate under the service agreement look better (e.g., $135/hr; $270/hr).

Second, have as few rates as possible. For example, don't have different rates for after hours support, weekend support, emergency support, and holiday support. Make regular support one rate and everything else the other rate. For example, $135 and $270.

Your little one-page handout will have a huge number of variables. Don't make pricing complicated.

Third, make sure the bottom rate (the most tempting) is pretty bare bones. For example, monitor and patch the server, but don't provide a kitchen sink solution for $500.

Note on client tendencies: Clients generally don't see desktops as a "problem" area. They want to cover servers because you've told them how important the servers are. And they want to get rid of all the hassles with spam and ISPs and network crap. Don't offer a Servers and Network only option. It could be a nightmare and will only encourage them to try to manage the desktops themselves.

We recommend that you do basic server support as tier one. Do server and desktops as tier two, and do all-you-can-eat as tier three.

It's a lot like cable TV. Basic cable is $12.95 and no one buys it. You want HBO, but you can't get basic+HBO. You have to buy Standard Cable, which is $49.95 and then you can add HBO. If a client wants the network and printers covered, they can't get that as an add-on to server support. You'll sell them hours, of course, but it's not included.

In our case, servers only is $500/month. If they go to servers and desktops, the server becomes $350/month and desktops are $45 each. So, if they've got ten desktops, they've gone from $500/mo to $800/mo. Moving from there to Platinum is really just another $150/mo (it's $60/desktop). Platinum for one server and ten desktops would be $950/month. That's $11,400/year.

Not bad. And the more automated you are, the more profitable you are.

With a structure along these lines, you might never sell a gold contract: only silver and Platinum!


Why not go with a Cafeteria Plan?

We started out this way. We always signed contracts, but slowly worked our way into flat-rate products. Remote monitoring, etc. The problem is: Overwhelmingly, clients want to cover one server and not the other. If given a choice, they don't want to cover workstations. But they do like the idea of never having to deal with the ISP again. So they want a donut. And they don't want to cover all that stuff in the middle where all the users live.

If you only cover a single server, you need to be ruthless about hourly charges. You will find yourself arguing about what's covered and what's not. And that's not good for the relationship.

Even on the Silver Plan, you have to cover all servers.
On Gold and Platinum, you have to cover all workstations.

Clients who pick and choose will pick the machines that are troublesome (they're not stupid). So you'll be stuck giving flat-rate support to a bunch of high-maintenance machines.

The system works because it's based on the average cost to maintain a bunch of machines.

If the client gets to pick a handful of machines to cover, you could probably double your monthly rate and still not make money on those machines.

Just my opinion. Remember when I said I'm not going to try to be balanced here? Trust me and just don't do a cafeteria plan.



With luck you have an attorney with a quick turn-around, and who won't send you an invoice for replying to your email. "Not done yet. Please remit $75 to cover the cost of this email."

Next time we're going to cover your sit-down strategy with each of your clients. So after you send the service agreement off to the attorney, and after you've printed your new price sheets, gather the info you'll need for next time:
  • Client spending reports from Part One
  • Spreadsheet you created from Part Three (guesses about where clients will land)


You're THIS close to your first Managed Service Agreement.

But there's a strategy. You can't just show up with one of those goofy oversized pens and sign the big deal.

Next time we'll walk through the sit-down strategy.

I can hardly wait!


  1. Karl - thanks for the time to put this step by step guide in place. I've enjoyed getting and reading your network docs and managed services books, getting your audio CD (there's only 1, right?) and reading your blogs.

    But help me get over this 'hump'...

    I may simple be (deserve to be?) someone to whom you'd refer clients that don't want a managed services arrangement? IN the blog, you mention about clients over $X,000. Most all are < that number, including hardware! So is there hope for me?!

    My issue with this is that my clients are typically small businesses under 10 seats. They may have been running XP pro in a peer to peer arrangement on a desktop acting as a server, no backup, no RAID, no redunant power supplies, web and email hosted outside and using Outlook or outlook express for email on the desktop. No shared calendars, etc. Very simple arrangement. And for several years, the system has worked and I'd rarely get a call. At some point they start running out of hard disk space or the server just up and dies, etc.

    So they need something new. XP on a RAID workstation? Or a true server?! Yeah, shared calendars are nice. Remote access? 1 or 2 people need it and they've been using gotomypc. overall, spending <$1,000 on IT between a couple calls to me, web hosting and gotomypc.

    Now they'd like a shared calendar, they still want a remote access for a couple people, etc.... is SBS overkill for all that? Or just put in a new worksation with RAID and running XP pro?

    And if you say, yes, go with SBS, then this 'better / (more stable?) OS' that you are pitching with all these hardware redundancies winds up costing more / needing more hand holding?! My perception is that Managed Services is glorified babysistting? What are they getting for the extra thousands of dollars in Managed Services vs. that XP desktop acting as a server that ran for months at a time without needing to do anything. And if the server was down for hours / day or 2, not a major issue in most cases - these clients are able to manage without their PCs for some strech of time.

    Thanks! I am not trying to be a naysayer here, but rather want to learn the mindset I should have to be able to better sell this concept to clients.


  2. Anonymous2:25 AM

    If I could offer some input from my own experiences. At first most client's don't need more that what you have described.

    My first client used a SBS2003 just for file sharing when I took over. They were spending around $1200 on support a year.

    Part of our job is to educate our users how to become more productive using tools that they might not know were available or use methods that they didn't know existed.

    A year later, the SBS is serving Exchange, Remote Workplace, Shared Fax, and my next target is SharePoint.

    Over the past year they spent $3500 on services and now I'm preparing a managed services contract for them at around $500 monthly.

    And most importantly they are now happier and more confident about the IT environment.

    Clients seldom change their IT needs themselves. It is our jobs to educate and find these new needs for them.

    Hope I helped.

  3. Theo: your comments are right on. Especially that last.

    We only ever converted a handful of people from I.T. Who-Cares to I.T. Dependent.

    We've never converted anyone to I.T. Strategic.

    What happens over time is that people become dependent on their technology. And then one day the server goes out. If they're dependent enough, they want to avoid this experience in the future.

    Mike: my response is in a new post

  4. By the way, Theo, CONGRATULATIONS!


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