Monday, July 17, 2017

What is Project Labor?

We get email. Craig asks, "What is project labor?" But then he gives an example (cleaning up a rat's next of wiring) that may not be a project at all. Here are some thoughts.

First: Please review two recent videos on dividing and bundling labor. Part One is here:

and Part Two is here:

Second, create clear definitions within your company for three different types of labor.

Maintenance Labor consists of all those things you do to maintain systems and prevent problems. You might call this preventive maintenance labor. This includes patches, fixes, updates, testing backups, installing service packs, reviewing event logs, defragging databases, etc. Anything that improves daily operations and staves off problems is considered "maintenance."

The goal of managed services is to sell all "maintenance" labor for a flat monthly. Ideally, you will include everything you can in maintenance labor so that the client is very clear when something is not maintenance. "Not maintenance" is either add/move/change or a project.

Your mileage may vary, but here's what we came up with: We estimate about 1.5 hours per month to maintain a server to our standards. And it takes about .25 hours per month to maintain a workstation. So if a client has one server and 20 desktops, we would estimate about 6.5 hours per month to maintain their systems. Assuming a reasonably trouble-free network, you might round this up to seven hours per month (84 hours/year) on average to maintain their entire environment.

Note that you CAN calculate how much labor it takes to perform maintenance labor over a year's time. Assuming you provide the same level of maintenance across all your clients, you'll find that the amount of labor needed to maintain a server or workstation is within a very predictable range.

Break/fix or miscellaneous hourly labor is labeled "Add/Move/Change" in our system. This title helps clients and employees draw a nice line between what's covered under maintenance and what is not. An addition of a user or workstation is not maintenance.* Changing out a switch for a newer switch is not maintenance.* Moving equipment around the office is not maintenance.**

For me, A/M/C or B/F labor is just normal stuff that comes up from time to time in any office. In other words, it's not a project. If Outlook opens in safe mode, fixing that is maintenance. If a machine does not have Outlook installed, then installing Outlook is an Addition and therefore billable.

We used to estimate that A/M/C labor was equal to about 25% of managed service labor. But, with newer equipment, business-class equipment, and cloud services, this number has gone way down. For the average cloud service client, A/M/C labor is between 0% and 10% of the monthly managed service labor.

Project Labor refers specifically to a job that is a little larger and takes more than one step. For example, installing a new server involves setting up the hardware, installing the O.S. and software, joining the domain, migrating data, and configuring everything so it's accessible to clients who need it. Because it's many steps, the project is large enough that it should be handled separately from basic A/M/C service tickets.

I highly encourage you to quote projects for a flat fee. This requires that you have some pretty good estimates of how long it has taken you to do these things in the past and what it will cost you to deliver this project. For the client, a flat fee guarantees a known price and gives them the comfort that there won't be cost overruns. For you, it forces you to quote the job profitably and motivates you to be as efficient as possible to maximize your profit.

When we're honest with ourselves, we have to admit that any project can experience a labor increase or decrease of ten percent just due to circumstances outside our control. With a flat fee, you can take that potential increase into account and then focus on controlling things as much as possible, almost forcing yourself to greater profitability.

If you haven't read Project Management in Small Business by Dana Goulston and myself, please check it out. If you're rigorous, you can guarantee that no project is ever unprofitable again.

So let's get back to Craig's specific question: The Rat's Nest. He says, in part:

"They have a running network but the network cables look like a rats nest and they want me to straighten it up.  The thing is the network is fine, so I see this as a project because this is a request that although it’s needed, it’s not required for them to have a running network.  I came into this situation I didn’t create it."

The good news is: 1) The client wants you to fix this, and 2) They know you didn't create it. As you said, the network is working, so this is really just ugly, sloppy work that needs to be cleaned up. I also assume the place could benefit from a few labels here and there, and maybe even a bit of color-coding if the network wiring includes Internet wiring, data wiring, and telephone wiring. But even if it's just unplugging and re-plugging everything so it looks professional, it's definitely a billable job.

The good news is: If you haven't signed a managed service deal yet, you can include the cost of this in their "setup fee" and it will appear to the client that it's just included in your service. So you might have that option.

As for whether this is Add/Move/Change or a project, I would go with a project simply because a job like this is perfect for flat-fee service. You can do it over a series of days if that makes sense (e.g., one hour per day at 5-6 PM until complete), or do it all at once during a time when they can afford downtime. Make sure you include cables if needed, and Velcro ties (not zip ties) in your price estimate.

You could decide to simply create a ticket and charge by the hour. But remember that things like this are a great way to build rapport with a new client. So even with a ticket, I'd work very hard to stay within your time estimate so the client knows they can depend on your word.

Hope that helps. If nothing else, there's plenty to think about.

- - - -

* Unless it is. Of course you can create managed service agreements that include new desktop PCs at regular intervals or hardware-as-a-service contracts that include new equipment from time to time. You can create any deal that makes sense for you.

** There really is no exception here. But since the last two had asterisks, I thought you might be expecting one here.



  1. Thanks to a brilliant effort in publishing your article. One can be more informative as this. There are many things I can know only after reading your wonderful article. miami office cubicles

  2. Karl,

    As always, I appreciate all of the content and advice that you bring to the industry and you've done a tremendous amount to move it forward over the years.

    This is one of the more thought-provoking posts (and accompanied videos) you've ever posted, at least to me. We have a major problem with profitability on our MSP services. There are many reasons for this, but the biggest is that we give away labor that should be billable. This isn't an isolated problem, unfortunately it is how I built the company from day one, so it's woven deeply into our fabric and culture. As a result, it is preventing us from further growth.

    Everything you have written makes sense and I consider it to be the best practice on how to run an MSP business and maintain profitability. But I have one question on the semantics - and that is on the topic of "break/fix". You seem to throw that in the bucket of A/M/C, but then say that Outlook opening in Safe Mode is "maintenance". I've always known this to be break/fix or more commonly Help Desk, which we include as part of MSP services.

    So to clear it up, would you define break/fix as "the client broke something and now I have to fix it", which in your world is billable? If so, there just seems to be a LOT of grey area with that statement, and working from that premise seems like it would produce a contentious relationship with the client and a lot of finger pointing. I.e., billing the client for something they accidentally broke, and then being asked to prove it.

    There are always egregious matters, such as "my son installed XYZ on my laptop and now I have ads popping up", but the general day to day stuff is not done with nefarious intentions. And in general, it should be minimized by having good protections in place, users not having admin rights, etc.

    I guess I've had a misunderstanding of the term break/fix all these years - which was "if something breaks, we will fix it under managed services at no additional cost". I could benefit from more explanation and perhaps examples of items that are covered under your "maintenance" and items that are not - specifically when something breaks.

    Thanks again,

  3. Thank you for the kind words, Frank.

    Good question: Break/Fix. I use that term generically to speak about work not covered by Managed Service. For the most part, I try to use Break/Fix when talking about something outside a managed service contract. Within a managed service contract, I refer to billable labor as Add/Move/Change.

    Defining the line between "covered" and billable is extremely important. Here's the example I always use for clients and employees:

    1) If you ask me to install Outlook on a computer, that is an Add/Move/Change and is billable.

    2) As soon as it works properly, then we will fix it for no additional charge if something goes wrong (e.g., bad patch).

    To me, that's maintenance of the operating system and software (my definition of what's covered).

    What's not maintenance? Let's say you have a share meeting room resource set up in Outlook so people can schedule time to use the conference room. You decide to create a new meeting room, can't figure it out, and somewhere along the line, you removed the old shared resource. Now it's all messed up.

    Fixing that is not maintenance. It's fixing something you messed up. Showing you how to use your software is not included in managed service.

    My experience over the last 20 years is that this does not result in a contentious relationship. Clients pretty much know when they do these things. And sometimes they even flag them as billable themselves. My favorite attorney client used to always screw things up and then enter a ticket that started with, "I was messing around on the server over the weekend . . .." That was code for "Please bill me."

  4. Thanks Karl. Here are a few other examples of where we sometimes struggle to delineate:

    - Quickbooks updates, both R# maintenance releases and new year upgrades (i.e. 2016 to 2017)
    - Line of business application maintenance/updates, both minor patches and major versions
    - Run of the mill IT Admin activities such as a new user account, add an alias to an email account, etc

    I would love to hear how you handle these examples.


  5. I basically take the approach that minor updates and quick patches are included. If experience shows us that an update is minor and takes less than 1/5 hour, it's covered. Major updates, including all version updates and service packs, are not covered.

    This applies to all software.

    Note on Line of Business apps: Client must pay for maintenance with the vendor. If not, all work on LOBs is billable. If we can call tech support and sort things out quickly, it's covered. But if we can't call tech support or have to pay for the call, then it's all billable.

    Admin services are either maintenance (covered) or add/move/change (not covered). So adding users or ailiases is not covered. I have talked to some MSPs who include an hour a month of minor stuff like adding users. If you have a lot of this, you might raise your rates a bit and include it.

    Thanks, Frank.


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