Which Managed Service Provider Contract Structure Is Right for You?
When entering a contract with a Managed Service Provider (MSP), there are two common structures to consider. All MSPs are prepared to legally affirm things like client confidentiality, non-disclosure, data protection, and similar items in their contracts, however, the flexibility of the contract may differ. We will explore some of the pros and cons of each contract model, and wrap up by explaining which structure we prefer.
First, what is an MSP?
Managed Service Providers are specialist companies that deliver outsourced services. It’s a term commonly used to refer to IT service providers that deliver infrastructure, security, maintenance, and other solutions.
The Annual or Multi-Year Structure:
Long-term contracts with MSPs for managed IT services often range from 1-3 years. This type of contract obligates the client to a fixed term of service, typically with a minimum monthly cost.
The Pros: The main benefit of the long-term structure is predictability, for the client but especially for the service provider who is investing in onboarding the client. Some MSPs provide a financial incentive for long-term contracts, such as reducing onboarding expenses or spreading out the financing of large IT projects over the length of the contract, which may add an extra benefit.
The Cons: The primary con of this type of contract is the possibility of getting stuck with an MSP or solutions that are no longer a good fit for your business. While many contracts offer an initial trial period during which the agreement can be terminated, after this period the client will be subject to early-termination penalties should they need to change scope, services, or, in rare circumstances, choose a new MSP.
The Month-to-Month Structure
The monthly structure allows the contract to be renewed, terminated, or adjusted from one month to the next without penalty.
The Pros: The primary benefit of this model is scalability. You can make changes each month to reflect the changing needs of your organization. Additionally, if the provider is not a good fit, the client has the power to find the right fit elsewhere without having to wait till the end of the contract or pay large fees.
The Cons: One con to this model is the potential to end. While the month-to-month contract model allows the client to terminate it in case of a negative experience, the provider also has this power.
Which do we prefer?
Like with our pricing models (add the link to the previous blog), we believe strongly in a flexible approach to contracts. While we aim to build long-term partnerships with our clients, we prefer to do this by earning your business through demonstrating our value every month. We never lock our clients into a services model that doesn’t scale up (or down) with the needs of their environment.
That being said, if you have special contracting needs due to the nature of your organization, we are happy to put a structure in place. But know that we’ll still earn your business each month!
What is next?
Do you have questions about how our month-to-month contract model works? We would love to have a conversation about it! Reach out here.
Explore our Proactive Service Packages here.
To share about which pricing model you prefer, see what others’ opinions are, or ask general questions, drop into the conversation on our social media!