A lot of MSPs can agree on the basics of selling managed services, including what to feature in their bundles, how much to charge for implementation and management services, and even the main points on their service level agreements (SLAs). But, when it comes to contract terms, lines get drawn in the sand, and passionate debates ensue.
Here’s a summary of the potential downsides of short-term managed services contracts, followed by some tips for convincing your clients that long-term contracts are their best option.
The Downside of Short-Term Contracts
Proponents of short-term contracts often say this approach builds good will with clients by proving that the MSP will continue delivering valuable services after the initial sale. And if the client ever feels otherwise, it can replace the MSP with another one with no strings attached. However, there are also some serious downsides to consider.
To begin with, short-term contracts decrease your income predictability, which is one of the biggest drivers for making the move to managed services in the first place. Every MSP knows that setting up a new client requires a lot of time upfront assessing their environment, replacing outdated hardware and software, setting up various services, and fine-tuning their network. Some companies have no qualms about using your company to get their IT up to speed and then parting ways. If you have a long-term contract in place, it gives you at least a few months to recoup some of your losses before they leave.
Next, with short-term contracts you often bear the full responsibility of the relationship. While this is noble, it can also give the perception that your client has no stake in the game. The fact is, it takes time to establish solid relationships with your clients, and it could be months before projects are completed to the point where they are able to see the full value of the solution. With a long-term contract in place, your client can see value that begins with implementation and goes all the way through to the management of the technology solutions and services.
Having a short-term contract in place also makes you more vulnerable to competitors. After all, if it’s easy for a client to leave, why wouldn’t they check out every company calling in claiming that they can take care of their computers and network better and for less money than you can? With a one-year contract, you’re protected from many of those problems — at least for most of the year. And, a long-term contract will also help clients evaluate your performance over a longer period rather than looking only at their latest engagement with your company. Even the best MSPs can have an off day from time to time. But, over the course of a quarter or a year if the client’s experience has been positive, they’ll be much less likely to part ways.
Four Tips for Proposing Longer Contract Terms
Despite all of the benefits, clients may have reservations about entering into long-term contracts — and you may have some, too. Here are three suggestions for making these conversations easier:
- Start with the highest term. If a three-year contract is the ideal length you’d like a client to sign on for, start with that. If they object, it will allow you to understand their specific reservations, and you can always work your way down to a two-year or one-year agreement if necessary.
- Provide incentives. You already know the benefits of long-term contracts for you. Make sure to include incentives for your clients the longer they’re willing and able to commit to. Perhaps you can lock in pricing for a longer period, add discounts that allow for more predictable pricing, or include other valuable services such as free security training or a business assessment.
- Include facts. If you’re able to point to key performance indicators (KPIs), such as the average length of time clients use your services, definitely share this info. Client testimonials and case studies are also great anecdotal ways to build confidence in your company.
- Provide Mutual Terms and Conditions. Include mutually beneficial language in a legal document that covers your client from breach of service and you from non-payment, for example.
By communicating the added value of a longer contract term and highlighting the benefits it provides to your SMB clients, you can start stretching out your standard month-by-month contracts to one-year, two-year, three-year, and maybe even more. Long-term contracts don’t need to be a burden for your clients—they’re a great way for them to lock in better rates, gain free value-added services, and focus more of their attention on running their businesses instead of worrying about their IT.
Scott Bennett is director of North American partner management at Barracuda MSP. Read more Barracuda MSP blogs here.
