Case Study: Cascading Contract Automation Increased Profits
The monthly billing of the first Customer we engaged with was 4% T&M and 96% for the Managed Service Agreements (MSA). So, I asked the Owner if all the Customers were All-In Managed Service Customers? His reply was “Yes, why?” “Typically,” I said, “even when all Customers are under a Managed Service Agreement, T&M billing is around 20%. ”We then got right to work to reduce the Tech’s ticket coding burden for billing purposes by asking them to answer one simple question: “What Type of Work did you do?”
Within two months, the monthly T&M billing rose from 4% to 22%, as predicted, and we have seen this many times since with other Customers. You see, the problem is this: while an MSP can have all Customers under a Managed Service agreement (note: very few MSPs take this stance, but some do), and the MSA is an All-You-Can-Eat variety, there is still a significant amount of work that is billable and outside of the agreement.
Shout it Out Loud: ALL Work is Billable!
Note: “All work is billable! If we are entitled to be paid for the work, then it is billable! How the Customer gets billed, Managed Service Agreement or Line Item on the invoice, should not be a concern of the Support Team.If it is warranty work, business development, or in some cases travel, then yes, it is non-billable. The rest of the work is all billable and uses a billable Work Type.” -Adam V. (former supervisor)What work could possibly be T&M billable with an All-You-Can-Eat agreement in place? The answer depends on the Contract Exclusions. Some examples of typical Contract Exclusions are:
Project work
DR
Audits
Malware response
Security Breaches, etc.
Not to mention:
Afterhours
Onsite
Major Service Requests
Installs
Work covered by other types of Managed Service Agreements
The Purpose of Cascading Contract Automation
The aim of Cascading Contract Automation is to shift the burden of making sure all invoices bill correctly from the Support Team to the Professional Services Automation (PSA). This provides two very profitable benefits:1. It frees up the Support Team to focus on servicing the Customer, not coding tickets.2. It increases the quality of the invoicing, and from our experience, increases T&M billing up to 18%. This is done by expecting two things out of the Support Team members: 1. The Service Coordinator or whoever is processing “New” tickets to select the right service that applies to the Customer’s request.
For MSPs with services tied to contracts
2. The Techs need to communicate (go figure) what Type of Work they did. For the automation part, it starts with what is excluded from the MSA agreements. A follow-up question "is it excluded to the standard rate or some other rate? "The “some other rate” could be lower, as in the case of offering a discount for work that is outside of the MSA, or it could be higher, as in paying a premium for extended hours or expedited service. These exclusions play into having the time entry processed by a secondary level contract, after being excluded by all the contracts that come before it in the cascade. How many secondary contracts are allowed? We are not sure, but we have built a cascade of 9 contracts: the primary MSA contract and 8 excluded secondary contracts.
Which Type of Contract to Use for the Primary Contract?
Normally, the primary MSA contract is a Recurring Services contract, but this is not a requirement. We have built a Cascading Contract schema using a Block Hour, T&M, and Retainer contracts as a primary agreement. We have also used Recurring Services contracts as secondary contracts to a primary MSA contract. There is also no limit on how many Block Hour, T&M, etc. and secondary contracts there can be in any one cascade for any one Customer. In other words, Sales can be as creative as they want, sell whatever the Customer will agree to pay for, and the Autotask PSA Cascading Contract Automation can handle it. This includes quarterly block hour agreements with true up QBR processing. Considering the following:
We can sell anything, once the agreement is signed
It doesn’t matter how convoluted the agreement is
Nor does it matter what type of contract is primary
We can have as many of each type of contract as we want
And as many total contracts in the cascade as we need
Then the burning question is: How do you decide what type of contract to use for the Primary Contract? Our recommendation is to start with the type of contract that is going to see the most action (Customer Requests/Tickets). The Primary Contract will be the Default Service Desk Ticket, and if it is the right contract, for most requests, then there is less chance of something not being coded right and the billing not correct. Follow this logic as you build the cascade so that the first secondary contract is then the second most used contract, and so forth.
A Must-KnowAbout Fixed Price Contracts
From my experience, Fixed Price Contracts are mostly used for projects. If so, they should be at the end of the line. The reason for this is that they are short lived and usually far shorter than the MSA. By adding them at the end, you can activate and inactivate them at any time during the MSA time period without disrupting the cascading stack. If a Fixed Price Project Contract is added to the middle of the cascade, the exclusion contract designation needs to be changed to the contract that comes before it, and vice versa when inactivating the contract.
And Some Notes on Inactivating Contracts…
When contracts expire, they need to be either renewed or inactivated. Just because a contract reaches its end date, it does not automatically inactivate. Also, inactivating a Customer does not inactivate their contracts. For those who do not know what inactivating a Customer means, this is a concept that means a Customer decides to see if the grass is greener on the other side of the hill. Of course,I know this has never happened to you, but when it does, relax, give them a good send-off, and remember they will be back when they see what looked like green grass was actually plastic.
Just One Last Thing...I promise!
At the end of the Cascade, if there are still situations not accounted for, they will just invoice at the standard rate. As a matter of fact, anytime the Customer is to be invoiced at the standard rate, just exclude the type of work, and the standard rate will apply.This is an introductory article to a new series we’re embarking on. Over the next six weeks, we will be covering topics such as:
6/26 Definitions
7/3 Cascading Contract Review
7/10 Matching Exclusions to Work Types and Roles
7/17 Creating Templates in the Zero account
7/24 Rolling Out Cascading Contracts
7/31 Support Team education
I hope this is helpful and that you will stay with us for the ride. See you next week!