Changing the Business Model - Residual versus Hourly

[kingdomcomputer]

Not even sure how to formulate my question, so please bear with me. I have been running a small computer repair shop for a few years now. I like to think that I am good at what I do, but admittedly, I don't know much about running a business. I believe my business has the potential to grow much larger, but guess I have come to an awkward point to where I feel like i have come to the end of myself, and feel like I am always chasing a dollar...

Mind you, my family is not starving or anything, it ain't like that. But I feel like I am nowhere near where I should be having been in the game as long as I have. I'd like to make some changes to help begin creating residual income, At the moment, I don't offer anything with recurring monthly fees, and that's something I am very interested in, so that during slower periods, there is still an expected level of income. I have thought about it almost like insurance... People pay their premiums and actually hope they never have to use the service. The same is true of alarm monitoring.

So, form some of you who offer something of the like, would you mind sharing some of what you do? My very broad scope idea is something like monitoring, perhaps using something like Nagios, with remote support options for basic regular maintenance. Something designed to keep systems running optimally, with minimal work on my part, and something that is comfortable for a client to pay monthly for that peace of mind to know that they are taken care of before a problem happens, and are in good hands in case something does go south.

I guess to sum up, I am looking for in depth conversation regarding how some of you went from feeling like you're still an hourly employee to being a real business owner. I am curious about service level agreements ( i think that is what I am looking for, anyway) and what products/services you use to monitor and maintain your clients' systems. I am open for discussion as to how you determine your pricing for said SLA's. I know pricing will vary greatly depending on location and target client.

I don't expect anyone to give me a magic bullet or formula that will solve my issues. I just want to open up the discussion and hopefully find the catalyst that will trigger something in me to think outside of where I am.

Last thing I wanna say, let's try to keep things semi-budget minded as well. I don't make a million bucks, but we do well because I don't spend much and won't borrow money... Don't wanna dig a deeper hole to get out of one, if you know what I mean.

If there's any further information you might need from me in order to better answer my "question", fire away.

Thanks in advance for your time and any suggestions, stories, whatever you got...


-myk

 

[layoric]

Been trying the same thing

I've been trying the same thing. Still trying to get others to come on board withe my maint. plans.

I think it also becomes an issue with marketing. One cannot just create a plan and expect people to appear out of no where. I believe my maint. plan of $200 yr for home PCs is good, but I just need to present it to more people.

 

[tarik]

we too are in the same boat. we were approached by our first two potential clients. One we were too expensive for ( even though i felt we were well priced and very thorough in what we offered)
Second we are working on at the moment and they seem quite keen although it is only a small contract who knows what it might lead to? My wife has an industrial cleaning company and all of their contracts have come from referrals.

 

[Knightsman]

Its been a slow process for us. For me, I either have customers that are totally interested, or dont care at all.

I have 17 computers now that I manage, and hope to keep increasing that number as I go.

 

[PCX]

While I do believe you should head in the direction in addition to what you are already doing, let me ask you a few questions about your current business model.

I am assuming that you are in a shop setting doing the break fix model

How long have you been in business?

Have you raised your prices any since you started?

Are you charging hourly or flat rate for repairs?

What are your rates compared to your competition?

Who is your target market? What tax bracket would they fit in?

What type of advertising are you doing? Is it targeted or blanket advertising?

 

[Parkwaytech]

We moved to this model about 3 years ago, and now we have very little work that isn't somehow tied to an agreement. Obviously brand new clients are billed hourly, but you would be surprised at the number who jump right in when they here what we include.

I don't share pricing for our agreements, but I will say that bundling is your friend. Think about the cable company. They bundle quite a bit, and they get more per customer because of it. If you bundle what your clients really need then they won't gripe that they can't get it a-la-carte. We have three different tiers of managed services agreements depending on the client's budget and needs. Every one of these tiers includes managed antivirus, managed offsite backup, and maintenance. As they move up the tiers they get unlimited remote support, warranty coverage, SPAM filtering, etc.

The best thing you can do is try to think from your client's perspective. If you were shopping for their business, what would you choose? What services are absolutely essential and why? What is their typical budget? Give a little more value than you are comfortable with and you have hit the sweet spot. Thinking like the client will also help with your marketing. Good luck!

 

[kingdomcomputer]

While I do believe you should head in the direction in addition to what you are already doing, let me ask you a few questions about your current business model.

I am assuming that you are in a shop setting doing the break fix model

How long have you been in business?
Part time for about 3 years, and then full time for about 3 years

Have you raised your prices any since you started?
Prices have tripled since my start, this helped me to shed dead weight clients and gain much more respectable commercial clients

Are you charging hourly or flat rate for repairs?
Yes, for onsite work. For in-shop repairs, most tasks have a flat rate

What are your rates compared to your competition?
Hourly average for IT consulting around here is $100-125, whereas our shop rate is $95 for hourly jobs, with 1.5 times that for after hours service

Who is your target market? What tax bracket would they fit in?
Not too good at defining that, unfortunately Ideally, I love working with small to medium sized businesses, preferably locally owned, or if corporate, they should be able to make a good deal of the decisions themselves. I prefer to be able to speak in person with decision makers. The ideal client has no on-staff IT personnel but understands the ongoing need for maintenance and understands that the data on their machines is much more valuable that the machine itself...I'll try to better define this as we continue

What type of advertising are you doing? Is it targeted or blanket advertising?
Been all over the world with advertising in different mediums from TV, radio, to print and internet. At this point, I am doing word or mouth and internet primarily, as they seem to be the only ones that yield results for me. I am a member of our local Chamber and attend networking events whenever possible.

My answers are in bold, hope this helps you help me

Thanks, guys, this is turning into some interesting discussion that I hope many of us will benefit from.

 

[technibbling]

Ditto Here!

Last month I was so busy I thought I would have hire personnel for the 1st time. Suddenly ... wham-o. I hit a slide like never before. I week with only 1 job. It's slowly picking up.

Mind you, I work out of my home and all of my clients are either referrals or from Yelp.

Now I am offering Maintenance Plans ... feel free to check out my site. To get those clients I'm offering it up front once they are hear and give them discount if they decide to get it on the spot and show them how it saves them money.

ScreenConnect and Mhelpdesk have been a blessing by the way "This is not a paid advertisement" be nice though

 

[BitWise Computer Repair]

Its been a slow process for us. For me, I either have customers that are totally interested, or dont care at all.

I have 17 computers now that I manage, and hope to keep increasing that number as I go.

What do you charge if you dont mind me asking? Are these business or residential clients? What manated service provider do you use?

Thanks.

 

[npinc]

Well, I can tell you what I know. You have to create passive income. You can only earn so much by yourself because you only have so much time. Really, I wouldn't be worrying so much about the residual vs. hourly at the moment unless you're reselling managed services that you don't have to manage. I'd be worried about getting enough business to be able to hire more people.

As I mentioned elsewhere, if you are the "business" and the "business" is you.. It's not a business. You simply created a job and hired yourself.

So, first things first. Focus on marketing. Get so darn busy that you don't even have 5 minutes to grab a sandwich. Hire an extra hand. Give yourself a little elbow room so that you can actively pursue new opportunities. That would be the time to actively pursue things like recurring revenue streams IMO.

 

[lsi]

one of the first things I did to move into residual income was to sell business customers on just "server maintenance". I tell them that for the cost of 1hr a month I will put 24X7 monitoring and a 6am daily health check sending alerts straight to my cell phone (GFI Remote max monitoring) and then check and tune-up their server remotely once a month. Usually the best time to sell this is after you cleanup a mishap like backups weren't working, Internet went out over the weekend and nobody knew until Monday morning, they ran out of disk space and it shut down their Exchange store, etc. Then you tell them how you could have prevented it and sell them on the idea of monitoring and server maintenance. It's not really priced for just monitoring alone so don't focus on that; you base it on one hour of your time (your hourly rate) that they are already used to and then one weekend you remote into 10 servers at a time and do some updates and a little maintenance and check things over. The GFI monitoring does most of the work but I never give them an option to just purchase monitoring; it's a bonus to me doing 1hr of server maintence each month. I have at least $2,500 a month in smaller customers that just approve "server maintenance" and I knock it all out in a weekend or assign it to my techs to do if things are slow. Sometimes I think it's more profitable then my true MSP contracts just because I don't really have to spend much time on them and any additional hours needed from those customers are billed at full hourly rates. When they start using a substantial amount of hours over the months; I approach them with a plan to move it into a full managed services contract of sorts.

 

[lsi]

Well, I can tell you what I know. You have to create passive income. You can only earn so much by yourself because you only have so much time. Really, I wouldn't be worrying so much about the residual vs. hourly at the moment unless you're reselling managed services that you don't have to manage. I'd be worried about getting enough business to be able to hire more people.

As I mentioned elsewhere, if you are the "business" and the "business" is you.. It's not a business. You simply created a job and hired yourself.

So, first things first. Focus on marketing. Get so darn busy that you don't even have 5 minutes to grab a sandwich. Hire an extra hand. Give yourself a little elbow room so that you can actively pursue new opportunities. That would be the time to actively pursue things like recurring revenue streams IMO.

I've found that getting enough business often means passive, predictable income. If you know you have enough contracts bringing in guaranteed income, then you know how many techs you can hire based on your budget. I spent several years going back and forth trying to figure out when I could really afford to hire that next tech. Now I know because I either have the contracts in place or I don't. Again, it all depends on your business model but sometimes the hardest part is trying to predict trends well enough to know when you can afford to take the next step. If you can turn your existing customers into residual contracts it would be capitalizing on the hard work you've already expended.

 

[npinc]

I've found that getting enough business often means passive, predictable income. If you know you have enough contracts bringing in guaranteed income, then you know how many techs you can hire based on your budget. I spent several years going back and forth trying to figure out when I could really afford to hire that next tech. Now I know because I either have the contracts in place or I don't. Again, it all depends on your business model but sometimes the hardest part is trying to predict trends well enough to know when you can afford to take the next step. If you can turn your existing customers into residual contracts it would be capitalizing on the hard work you've already expended.

I can see your point there. I just find it hard to go out and pursue those contracts if I don't have someone covering my tush in the office. I find growth entails sacrifice. Think big. The biggest problem isn't setting big goals and not accomplishing them. It's setting goals that are too low and achieving them.

I used to go on the model of only working with what I already had, the known. What brought my success was focusing on what I wanted to have. Conquering my fear and seizing the opportunities. Jumping through windows and asking questions later. And most importantly, really believing that I could do it. Of course your mileage may vary.

 

[kingdomcomputer]

I've requested some information about GFI Max Remote Management, gonna look into using that as a starting point to , at the very least, offer monitoring services. Can some of you tell me a bit about your experience with the product?

Thanks,
-myk

 

[TenYardFight]

one of the first things I did to move into residual income was to sell business customers on just "server maintenance". I tell them that for the cost of 1hr a month I will put 24X7 monitoring and a 6am daily health check sending alerts straight to my cell phone (GFI Remote max monitoring) and then check and tune-up their server remotely once a month. Usually the best time to sell this is after you cleanup a mishap like backups weren't working, Internet went out over the weekend and nobody knew until Monday morning, they ran out of disk space and it shut down their Exchange store, etc. Then you tell them how you could have prevented it and sell them on the idea of monitoring and server maintenance. It's not really priced for just monitoring alone so don't focus on that; you base it on one hour of your time (your hourly rate) that they are already used to and then one weekend you remote into 10 servers at a time and do some updates and a little maintenance and check things over. The GFI monitoring does most of the work but I never give them an option to just purchase monitoring; it's a bonus to me doing 1hr of server maintence each month. I have at least $2,500 a month in smaller customers that just approve "server maintenance" and I knock it all out in a weekend or assign it to my techs to do if things are slow. Sometimes I think it's more profitable then my true MSP contracts just because I don't really have to spend much time on them and any additional hours needed from those customers are billed at full hourly rates. When they start using a substantial amount of hours over the months; I approach them with a plan to move it into a full managed services contract of sorts.

I like this approach. I've always said having lots of customers who regularly pay your full rate is better than reducing your rate to try to lock them in to a contract.

 

[lsi]

I like this approach. I've always said having lots of customers who regularly pay your full rate is better than reducing your rate to try to lock them in to a contract.

In some respects this is true but it depends on how efficient you are. I really resisted reducing my rates to try to lock them into a contract until I considered all the things I wasn't getting paid for without a contract. Now that I have those customers in a contract it's much easier to bill for the grey areas. When things were slow it seemed like I would spend an hour to sell an hour. Now the customer has already approved a certain number of hours I am going to spend on their network each month so there is virtually no sales process. In fact, if there are no fires to put out or projects to work on, we just head out and do what we think ought to be done as far as maintenance, backups, tuning, etc. It's all approved already. Eliminating the sales process is enough for me but I also like that we now get paid for a myriad of other things that used to be hard to bill like coordination meetings, misc. phone calls (usually asking for advice), ticket management, research, preparing hardware/software quotes, testing of a solution or possible solution, warranty work, follow-ups, etc.