When it comes to building a successful managed services practice, there are various schools of thought — even with regard to answering seemingly straightforward questions like: “What length of time should I make my contract terms?” At one end of the spectrum are those advocating month-by-month contracts and at the other are those touting the benefits of three-year contracts. While I’ve heard arguments from successful MSPs on both sides of this debate, it was a recent interview with Vince Tinnirello, CEO of managed services provider Anchor Network Solutions, that summarized what I think is the best policy for addressing managed services contracts. Here is an excerpt from my interview with Tinnirello:
“I get the fact that some MSPs want to position themselves for MNAs [mergers and acquisitions] down the road, but you have to take the customer’s perspective into consideration. We have one-year contracts with customers, plus we give them a 30-day out if they’re unhappy for any reason. If a client wants to cancel, we just ask them for a 30-day notice in writing. We want to make doing business a low risk proposition — not a gamble.”
Anchor Network Solutions adds a 100% money-back guarantee to its offering and invites prospects to talk to its other customers for references and testimonials, too. “We rarely have a new client wondering if we’re going to be the right fit for their business,” he says. “We currently have 75 customers under contract and our retention rate is in the high 90s. Typically, if a client cancels our contract, it’s due to something outside our control such as the customer’s business shrinking or perhaps the client was acquired by another company that’s under contract with another IT service provider.”
Another practice that illustrates the MSP’s “easy to engage with” business philosophy is selling on a per-user (rather than per-device) basis and providing customers with a fixed monthly fee. “Per-device contracts make customers feel like you’re nickel and diming them,” says Tinnirello. “Plus, this approach can backfire as customers move their servers to the cloud then expect you to discount their monthly service.”
In addition to this MSP’s persuasive arguments, it has some impressive stats to back up its business philosophy. Most impressive is the fact that last year it averaged a 64.13% profit margin on its managed services. Be sure to check out my full interview with Vince Tinnerello appearing soon on the Business Solutions website.