I know from experience as an IT solution provider that making the move from an ad hoc break-fix agreement to a flat-fee managed services agreement can be a real challenge.
When a client has become used to only paying for the time you spend, rather than the value you deliver, it can be a big leap to ask them to pay for a flat-fee arrangement.
That’s why many businesses that are moving toward managed services use block-time billing.
What are block-time agreements?
The clue to block-time agreements is definitely in the name. You sell your client a block of time—say, 10 hours—upfront.
Every time you do work for that client, instead of billing them (as you’d do under a break-fix agreement), you take the time off their prepaid block.
The real benefit to block-time agreements is that you reduce administrative overheads for billing—no more chasing overdue invoices. You also capture all the consultancy you’d otherwise give away for free.
If you’ve ever had a client call you to say, “Can I pick your brains about which new computer to buy?” then you know the client values you enough to ask for your advice. Bu they’d probably be horrified to receive a bill for the 15 minutes you spent advising them.
That’s called giving away free consultancy, and that’s why block-time agreements are valuable. In this scenario, you’d simply reduce their block of hours by the time you’ve spent, rather than trying to send them a bill.
I’ve seen many IT solution providers who’ve implemented block-time agreements really well. Here’s how I’ve observed they’ve been effective.
If it happens, log it
The key to block-time billing is, unsurprisingly, to capture all the time you spend helping your client. The most effective way to capture this time is to record it within your ticketing, help desk, or professional services automation (PSA) system.
Whether a query takes five minutes or five hours, record that time on a ticket and reduce the client’s block of time accordingly.
If you fail to do this, you’re essentially going back to what you did before, which is not capturing the value you deliver, and billing only for what you think the client will pay.
That’s not block-time billing. That’s not good business.
Educate yourself and your staff to start the clock every time they interact with a client. Lawyers and accountants do this, and so should you if you’re using block-time agreements.
Automatically bill for new blocks of time
When you set up a new block-time agreement, I suggest you include a clause that if the block of time falls below a certain level, you automatically bill the client for a new block of time.
If you’re selling blocks of 10 hours, then agree that if the block falls below five hours, you’ll automatically bill the client for a new block of 10 hours to top up the agreement.
This helps you avoid being in a situation, very common in break-fix, of doing work for a client but waiting for them to pay you.
With an automatic top-up arrangement, the client always has you on hand to fix their problems. They’ll never run out of hours in their agreement, and you’ll never do work without being paid upfront.
Be proactive in fixing issues
You and I, as IT professionals, know that an IT system is not self-maintaining. It doesn’t get installed, then run and run and run.
It needs maintenance. It needs patching. It needs updating.
Sadly, most client’s don’t want to pay for maintenance, patching, and updating. In fact, they don’t even want to pay you to fix things when they break. They just want it all to work.
Unfortunately, that’s not the reality of IT. But you can make sure the client doesn’t experience the pain of things breaking by using their block-time agreements to proactively look for maintenance, patching, and updating work that needs doing—and do it!
- If you see a server is using lots of disk space, offer to remediate the issue before the server crashes.
- Notice a printer that keeps failing? Quote the client for a new one and tell them they don’t have to worry about your time for installing it. It’s covered in the agreement.
- The client is laboring away on an old version of Microsoft Office? Tell them you can install the latest version, system-wide, and take it from the agreed time.
Clients who might have previously been reluctant to take these maintenance or upgrade steps, because they’re fearful of the cost, often seem much more comfortable doing this work if they’ve already paid for it through a block-time agreement.
Block-time vs managed services
At this stage, you may have the dawning realization that selling a client block-time is also coaching a client on two points:
- Value your time as the MSP
- Value their IT
That sounds a lot like managed services, doesn’t it?
Indeed, I’ve had many clients who’ve worked with me under a block-time agreement finally say, “Is there a way we can pay you a flat fee to do this work?”
While many IT businesses use block-time agreements indefinitely, there are many more who use it as a stepping stone towards managed services.
- Block-time agreements can be a great way to capture all the time you’d otherwise spend doing work you don’t or can’t bill for.
- When using block-time, make sure to aggressively capture any time you spend working for the client and reduce their block of time accordingly.
- Make sure you create block-time agreements that automatically bill for a new block of time before the existing block has expired.
- Look for chances to highlight issues that genuinely need proactive maintenance, patching, or upgrading—and bill for them.
- Block-time is a great way to move clients to a better way of managing and maintaining their IT, and that better way is often called managed services.