Right-Sizing Your Service Agreements: The Three Primary Types of Client Agreements Every MSP Needs

Right-Sizing Your Service Agreements: The Three Primary Types of Client Agreements Every MSP Needs

November 1

Karl Palachuk is the senior systems engineer at America’s Tech Support, author of ten books, and contributor to the Recovery Zone. 

This is the second part of a two-part series on service agreements. See the first post, “Service Agreements are Fundamental to Your Success: The Basics of a Good Client Relationship”.

You need service agreements with all of your clients. You probably have some combination of casual break/fix, managed service, and project labor. But you also have other products you sell. It’s impractical to have a dozen different types of service agreements. But how many do you need?

Three Basic Agreements

Let’s start by looking at the three fundamental kinds of agreements you need. First, you need a very basic “terms of service” agreement. As we discussed in the first blog post, you need to cover the basics of price and payment, as well as the checklist of government requirements that verify the client/consultant relationship (as opposed to employer/employee).

That should be literally a one-page or two-page document (one page front and back)—just the basics. No managed services, backup systems, and so forth.

You would use this basic agreement for new clients, first jobs, very small jobs, and all break/fix clients. Think about taking your car in to get something fixed. You sign a basic service agreement. That’s very different from a car lease with service rolled in.

Second, you need a service agreement that covers a true ongoing relationship with the client. This is the core of your managed services agreement or any other longer-term engagement.

This larger agreement might be tailored for programming, monitoring options, blocks of time, full managed services, and even project labor. This is where your world could get complicated. If you offer each of those services separately, you might decide to take your core service agreement and modify it for programming, managed services, etc. Or you might simply have each of those as sections within one document.

If you do that, you would simply note that certain items are not being purchased. For example, most clients probably don’t need programming. You could leave it in and say IF you need programming, it’s at this rate. Or you could just check a box that says “Programming labor is not being provided as part of this agreement.”

Which direction you go— a series of similar agreements based on a core document, or one agreement with options for each of the services— depends on how you want to operate and what makes the most sense in the sales cycle. I prefer to have one big agreement with sections that may not be executed for specific clients.

The third type of agreement is for add-on services such as backup and disaster recovery. Generally this kind of agreement is separate from the core agreement we just discussed because it involves a longer-term commitment for hardware, software, services, or some combination of those.

Examples of these specialized contracts include hosted backup services, BDR appliances, hosted servers, Hardware as a Service, etc. The maxim KISS – Keep It Simple, Stupid – applies here. If you have a hundred clients “on contract” and have fifty different service agreements, you’ve made your life too complicated.

What’s Inside the Agreement and What’s Outside the Agreement?

Most of the time, service agreements or contracts are just a formality. They help you show the IRS that you’re not an employee of the customer. They lay out the payment terms and the services to be provided.

And no one reads them after they’re signed unless something goes wrong. Once in a while a client will review a service agreement in order to refresh their brain on what’s included or some other detail. But 99% of the time, the client will just ask you.

Because of this, you should keep the service agreements lean and to the point. This is not the place for marketing materials, company history, or promotions. Just spell out what’s included and what’s excluded.

Basic “terms of service” agreements are very straight forward and normally do not detail the work to be completed. That is handled with a purchase order or service ticket. Specialty agreements tend to focus almost entirely on the service to be provided and the details around what the client can expect from that service.

The “standard” agreement for managed services or other ongoing relationship will have more detail. But even then, it should be just an outline of the kinds of services offered and the pricing for services agreed to.

Ideally, you want to take on just about any project the client has without having to sign an additional service agreement. That means you need to speak in broad terms and have a statement that specifically allows additional work to be performed as requested by the client and agreed to by the service provider.

If your experience tells you that there are certain sticking points with clients, that’s a good indicator that you need to address those points in your service agreement. But for topics that work smoothly and never have to be explained to the client, the service agreement can be silent.

The bottom line: Create the core service agreements you need, and for each of them, keep it as simple as possible.

Lastly, Don’t forget to have every service agreement reviewed by your attorney. You won’t “need” your service agreement unless the client relationship has problems significant enough to fight over. This is extremely rare, but if it happens, you’ll want that service agreement to be legally binding and protect your interests.

Legal Disclaimer: I’m not a lawyer. Nothing in this article is to be considered legal advice. You are responsible for all actions you take and any decisions you make.

Photo credit: buddawiggi via Flickr.