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Do it again: Secret to recurring revenue

One of the toughest things for an IT firm is to take existing clients and convert them into managed services provider-style clients or find new clients that are willing to go that way. It can be a hard-sell to get a business to go all-in on a fixed-price model. Some businesses want it and some don't, and whichever side they are on it's hard to convince them otherwise.

If you've looked at any black/white argument then the problem sounds familiar. When you're planted on one side or the other, it's hard to see that there's a middle. You just can't force companies to adopt your business model. The easier and more lucrative path is to meet the client where they are and bring them a little bit over in your direction.

What is the secret to getting those that don't want MSP services eased into the concept? You and I know that it shouldn't be hard because it's in everyone's best interest. You get a guaranteed income with which to stabilize your revenue and build a reliable business that your client can count on. Your customer gets better service because you don't make more money by continually failing to solve the problem. It truly is a win-win.

Occasionally, I run into IT firms that aren't convinced that recurring revenue is best for anyone. So let's do the math.

The break-fix way

Let's say that your marketing turns up a client that is interested in a new backup solution.  If you're a break-fix firm, you'll probably quote the potential customer a device to store the backup, some backup software, and installation. Let's also assume that your markup and costs are an industry average 10 percent for hardware and software and 30 percent for labor. The below quote then would give you revenue of $310.  Your customer would get their backup software installed and set up. It's an easy sale because you've given the customer exactly what they asked for.

The problem

There’s a problem with this, however. As an IT professional who owns an MSP-style IT firm, I've come across only two businesses in the past 16 years with backup systems that were working. Backups break, they just do. Businesses need someone to keep an eye on the backup, to test the restore, to keep the software up to date, and to manage offsite storage for them. They really do.

The recurring revenue way

These business owners do know that they fail to take the backup offsite sometimes, that they aren't positive that they are backing up everything that they need to, and that they have never tested their ability to restore the servers. What they probably don’t know is that they could contract you to do this for them and how affordable it is.

If you can't sell this business a full MSP contract of services, just sell them backup services. It's your foot in the door to show that you have their best interests in mind and are willing and able to take on the responsibility for making sure this solution keeps working.

In the example below I've added cloud storage for the backup, another hour of setup time, and maintenance. We'll make the same revenue assumptions as we did above. That makes the revenue generated from this quote $300 from hardware and software, $60 from installation, and $360 from the maintenance for a total of $720 revenue for your business in the first year and $480 for each year after that.

The advantage of this quote is that your customer gets a backup solution that will keep working for as long as they have it, the comfort of knowing that their backups can be restored, and a secondary cloud-storage location in case they forgot to take their backup home on the night that someone breaks in and steals everything with a power cord.

The secret

Here it is…the big secret. Resolve that when you issue a quote it will not go out the door without recurring revenue attached. I like to call these mini-contracts. They go a long way toward building confidence with a business that hasn't used an IT firm in this way before. The mini-contract built into your quotes are the secret to converting a break-fix client into one that generates recurring revenue.

The mini-contract

The mini-contract is so simple that you add it into the quote you provide. All it needs to say is what you're going to do and when you're going to send the bill. Get them to sign off on the quote and, viola, you're an MSP.

<name of IT firm> will provide monitoring of backup completion, maintenance to keep the backup working and will do a test restore of files monthly. We will send a bill to ________________________________ on the first of each month, net 15, for these services.

Accepted by _______________________________________________ Date: ____________________________

Notice that there's no end date. I like my contracts to keep going  for as long as they need to. There's no reason to renew a contract of this type. You don't want this contract to add administrative headaches. You just want it to establish that you're now working for them on a regular basis.

The long game

Now that you're an MSP providing backup services to this business, you'll have opportunities to talk to them on a regular basis and you'll have the opportunity to notice other things that need improving. This continued communication will inevitably lead to additional mini-contracts and eventually the combining of these into a single MSP contract.

In business, it's all about the relationship. Is that a second secret? Perhaps it is. If you have reason to talk to your clients on a regular basis about their backups, then you're developing a relationship with them. That relationship is valuable. People like to do business with people they know. When the next project comes up, when the next problem comes up, your client will think to ask you first.

Converting clients over to an MSP-style contract doesn't have be complicated. Start small, build the relationship with the client, and the rest will follow.