Breaking Down Break-Fix

Break-fix has become a dirty word in the MSP ecosystem, but it's still rampant. Just because it isn't called break-fix doesn't mean it's anything different. If you cost your clients money past your service contract, it's the same perception as break-fix. The question is whether it's necessary or not and how to scale your business while reducing the perceived cost for clients.

Break-fix has a bad reputation for several reasons. First, it works out to costing more for your clients and your business. Work can ebb and flow, you can either price yourself out or make yourself obsolete, and clients feel they're getting nickel and dimed the whole way. Second, it complicates your business process. How do you scale when you need to handle miscellaneous invoices and demands that have varying contracts and ad-hoc requirements?

Reframing the Break-Fix Mindset

The root of the idea for break-fix is that you charge per hour or unit of time that it takes to perform a task. Usually this is hourly, but sometimes it's a little more abstract with a fixed project rate (with an internal minimum and maximum projected). While this simple definition is useful, it doesn't explain the whole concept of break-fix.

Break-fix is a mindset where you're itemizing and making a service transactional. An MSP may not offer a break-fix service, but they're happy to have an hourly project rate, an extra service with block hours for this or that. Each bit of work is a new sales effort rather than part of the agreement you already sold. Now, don't throw the baby out with the bathwater and think that this means you can't ever have a break-fix methodology in play. But, you should understand the economic reasoning to why you have those offerings.

Break-fix is built on the principle of if it breaks, someone fixes it (for a cost), but this just doesn't make sense with certain services. If you do your job right, you cut your own business income. If you do your job wrong, it costs your clients money and you lose business. Some services don't fit this mold or don't scale. Use a break-fix methodology if it makes sense, but make sure you understand what you need with break-fix and why you sell it as such.

The Real Cost of Break-Fix

Break-fix is unpredictable and rarely scales. If your job is fixing computers, and you fix them the right way, how many clients come back? Plenty of customers will come back the next time something breaks (or they break something), but as you do your job, it gets less and less frequent. Your good work has reduced your own potential for predictable income. Does it make sense to get rewarded with less business for doing the job the right way?

Break-fix costs your business more than opportunity, it requires administration to keep track of projects, payments, and contracts. Each individual transaction is subject to negotiation and custom requirements. It doesn't have to be complicated, but it usually is. You get an administrative cost on top of an unpredictable income.

On the flip side, your client may get frustrated with your model. If you offer a service, but charge more for certain tasks, they feel like they're being wrung for money. Even if the service is clearly defined, they may still feel cheated. Perception is reality.

Even if your price is cheaper than a service, many businesses would rather know they're spending exactly $10k over a year rather than find a $5k cost with no notice (especially by the third quarter, or half the year). The risk of a high expense once is less favorable than a higher cost amortized to where it is part of a fixed, predictable budget. As margins get squeezed tighter and tighter, businesses have gotten more risk averse, even if it costs more on average.

Breaking Away from Break-Fix

A service involves a "single" transaction to agree to the service and then it has a predictable billing model. You need a contract when signing your clients to protect your business, and theirs. It's not worth fronting the cost of onboarding the right way upfront if you don't know whether they'll still be there in 3 months.

Your client reduces their risk, you retain a better profit margin (once the onboarding process is complete), and everyone is happier. You reduce both parties' risks by trading problems. A lot of businesses would prefer to spend more money with less potential for volatility (when properly educated). A well-run MSP would rather have a guaranteed amount every month so that when they finish onboarding, they just need to keep things running (barring emergencies and disasters which are amortized based on industry experience).

The next question is how can you apply this model to more elements of your business? It can be worth having a project rate for one-offs that have no real service potential (or that you don't want to support), but you need to make sure a break-fix, transactional offering is that way for the right reasons. Some companies also use these offerings to price themselves out of work they don't want, or as a price anchor for the more profitable service(s). Some companies do both.

What individual offerings can you bake into a service? Can the price go up while bringing the expected price and risk down for the client for a worst-case scenario or similar metric? Does it still make economic sense for both of you? Most importantly, can it scale for your business?

Moving Away from Break-Fix with Your SLA

Some MSPs don't need to worry about selling a client on an add-on or (traditional) upsell; these elements are just part of their SLA (Service Level Agreement). You may not be able to change your SLA for older clients if they don't bite, but you can set a new level of profitability with new agreements. Why would you need to sell a client on a network service when it's already part of the standard contract and rate?

Done right, this gets you the right clients for the right niche you support. Done wrong, it ends with you turning down otherwise good business. You need some degree of balance based on your clients' needs, costs, and expectations. You can just invoice it for certain things, but others require a proper service offering. It's up to you to figure out which one is which and make it transparent to your clients and prospects.

What things cost a lot of money randomly but are predictable on a yearly basis? For instance, you can expect a workstation to have a certain failure rate within the first 3 years or so (roughly 2-3% to up to 10% for some budget models), but the rate skyrockets by year 4. Why do you think most services only offer 3 years?

How much does the workstation work out to for the rate they're going to fail? If you support 100, are you budgeting for a few to fail a year in your service cost estimates or are you expecting the customer to eat the cost? What is your client expecting?

Set a standard for your clients and turn break-fix ideas into scalable services. Grab success by the horns and make your business able to grow without breaking. Set an expectation and make it work for both parties.