What’s Billable and What’s Not? Minimizing Confusion in Managed Services Contracts

Be Different. Deliver Excellence.

Aug 24, 2021

Pricing and billing are, quite often, the most important parts of a managed services agreement. Even among providers who prioritize transparency and strive to provide crystal-clear pricing (something we pride ourselves on at Collabrance!), unique circumstances are bound to come up.

It’s a question we shouldn’t hear from customers, but often do: “I thought that was included in our monthly price?” And we all know the “cringe” feeling that follows. But pushback on pricing doesn’t have to lead to strife. Instead, use these difficult conversations to reestablish trust, transparency, and an open line of communication.

But what if I don’t WANT to charge more or have an uncomfortable conversation with my customer? What if they resist or threaten to leave us?

Nobody wants to give the impression they’re nickel-and-diming customers – that’s the antithesis of the managed services model! But at the same time, managed services is a business; you need to make sure you’re being compensated for efforts and services not included in monthly support. If a customer isn’t willing to pay for services or offerings which weren’t factored into your initial price or cost analysis, they may not be a good long-term partner. Additionally, if you’re not willing to make ongoing modifications, you run the risk of having an unprofitable account. If that happens, you may end up having to eventually “fire” the account, because you weren’t able to have an earlier conversation about what’s included and what’s not in your monthly support fee.

In my opinion, situations like this are a great time to reestablish your scope of services and reflect on current sales processes to ensure comprehensive discussions are being had with prospects, to minimize the potential for confusion in the future.

So, what steps can be taken to minimize confusion about what’s included in monthly services?

1. Be willing to have difficult conversations with current customers and prospects about what is included in your monthly support costs and be prepared to justify why and when certain items are beyond scope and may require additional fees. Document your most common out-of-scope instances and make sure all client-facing teams are prepared to provide explanation if needed.

2. Be mindful of how your solutions are priced and what language you use during the sales and onboarding processes. Does your customer know how they’re being charged – is it a flat monthly rate? Priced per user? Per device? And be careful about using phrases likeall you can eat support;” it’s a catchy proposition that may cover most issues, but you want to make sure you’re not setting improper expectations.

3. Standardize technology and processes. Many of the issues that arise stem from technology which is out of warranty or outside your normal tech stack. Adopt minimum technology requirements for onboarding. Establishing standardization within your service offering and pricing signals to customers your business is knowledgeable and possesses expertise. It will go a long way in the ongoing support of your customers. (And this should not be a one-time thing; revisit the technology roadmap during QBRs to continue to educate and hold customers accountable.)

4. Speaking of standardization, make the technology budget planning discussion and recommendation a standardized part of the sales or onboarding process. This will eliminate a lot of questions related to billable work.

5. If you ARE going to make a pricing exception, have an established outline of the approach or exception-handling process; consistency will go a long way with your administration team. Having to handle each dispute as a one-off case will increase the likelihood of billing errors, which will lead to upset customers and the potential of losing the account.

What are some of the most common out-of-scope circumstances that arise?

Everyone has a different approach to determining what is and is not included in their monthly support. At Collabrance, we typically ask ourselves, “is this something new to the environment? If yes, the time needed to scope and implement is most likely billable. Some other common billable instances include:

  • New hardware equipment or software installations
  • Location changes – moves or add-ons
  • Upgrades to major software applications including operating system upgrades
  • Migration services - data, cloud, email, etc.
  • Hardware failures and software failures outside a manufacturer’s warranty (warranty expirations are good leverage to ensure technology refresh cycles are occurring on schedule, to limit financial and labor risks)

Situations that are going to vary depending on your business’s approach and pricing methodology:

  • Onsite support
  • After-hours support
  • Disaster recovery – ransomware, natural disasters, etc.


What documents and processes should be reviewed to confirm pricing and billing consistency?

  • Agreements including scope of work
  • Onboarding materials for customers – welcome book or video
  • Sales process – role-play and have confidence in anticipating what may fall out-of-scope based on your discovery process, and be sure to discuss that prior to signatures
  • FAQs – a great question to include is, “what is and is not included in monthly support costs?

Conclusion

When it comes to pricing and billing, the bottom line is to be upfront and spell it all out – clearly, and from the get-go. Introduce the most frequent out-of-scope services during the sales process to ensure alignment, versus waiting until confusion arises and causes frustration with both parties. If you collect a pool of customers who expect reliable service delivery but aren’t willing to pay, your managed services business will inevitably suffer; establishing clear communication and setting proper expectations from the start will help ensure profitability and happy customer relationships for life.



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Category: Business Practices

About The Author

Corey Kerns

Corey Kerns, Vice President and General Manager, is responsible for the overall vision at Collabrance, and oversees sales, marketing, operations, strategic leadership and financial performance. In 2015, Corey joined Collabrance as the Senior Finance and Operations Analyst. In this role, Corey was responsible for developing and monitoring key performance indicators, as well as assisting in the evaluation of profitability, efficiency and automation strategies. Prior to joining Collabrance, Corey started at GreatAmerica in 2011 and served as the Senior Business Unit Analyst for the Connected Technology Group. In this role, Corey led all activities with respect to financial controls and evaluating the financial implications of the business unit’s operating strategy. Corey received his B.A. in Business Administration from Wartburg College and earned an M.B.A. from the University of Iowa.