E-Commerce

Three reasons IT consultants require minimum service fees

If you're still on the fence about whether to charge clients minimum service fees, read Erik Eckel's three reasons why you should implement this pricing practice. Also, find out the one exception he makes to his rule.

 It's a topic many IT consultants debate: whether to charge clients minimum service fees. I know a number of IT consultants who hope to price services in such a manner that clients pay only for actual onsite or remote service time, as opposed to a minimum hour or half-hour charge.

Certainly, most every client would like to pay for just 10 minutes (if that's all a service call takes to correct an issue) vs. having to pay a minimum charge equivalent to a half-hour or hour service call. However, actual-time pricing models don't work.

IT consultants can't afford not to implement minimum service fees, and those who do ultimately run the risk of overcharging the very clients they're seeking to protect by fielding reasonable pricing. Here are three reasons why.

#1: IT knowledge has value.

No one wants to pay a technician, whether the technician is repairing a washing machine, a garage door, or a computer, $100 for a 15 minute service call. But the specialized knowledge and expertise required to diagnose a problem and implement the repair has value, and that value deserves to be rewarded. That's capitalism.

I'm reminded of the timeless story about a government contractor who's hired to repair a failed complex system that no one else can get to work. The joke involves the contractor coming onsite, kicking the machine, and charging hundreds of thousands of dollars. When presenting his bill, the contractor is asked if he's really charging that much money to just kick the machine. The punch line is the consultant says no, he's not charging for the simple kick, just for his knowledge to know where to kick the machine.

#2: Fuel, time, and technology cost money.

The value an IT consultant provides must, at a minimum, meet or exceed the expenses associated with providing the service or repair. Even if a field engineer can correct a networking or email error within 10 minutes, there's much more work that goes into delivering the repair.

The consulting firm must pay for the advertising that generated the repair request in the first place. The technician must then take time to prepare an invoice for the repair, bill the client, and on occasion, pursue collections to actually get paid.

Then there are the costs of paying the technician. Fuel is also expensive, not to mention the time out of the office traveling to the client's location. It became much easier to justify minimum one-hour service calls last summer when a single gallon of gasoline exceeded $4.50.

Even if repairs are completed remotely, IT consultants must cover their costs, as remote connectivity technologies require subscription contracts and infrastructure development, and those technologies are not free.

#3: Long trip/short service expenses must be absorbed.

In those cases where IT consultants choose to charge just for the actual time spent onsite, the increased costs of long trip/short service calls ultimately get passed on to other clients. How? In the form of higher per-hour rates.

This is true even for service calls that last beyond 30 minutes or an hour. Whenever a technician leaves the office, there's wear and tear on an office or personal vehicle that must be covered, either in the form of depreciation, maintenance, repair, and/or reimbursement.

That employee spends time traveling, which is time spent out of the office. That's time during which other repairs and service work cannot be completed.

How does the rubber meet the road?

I advocate (and my business charges) minimum call-out fees. Typically, I structure pricing so that any onsite call, regardless of duration, is charged a minimum fee equal to 75% of my firm's hourly rate. The fee essentially provides the client with a half-hour of service. Additional time is then charged at the regular hourly rate, albeit it in quarter-hour increments.

The only exception I make is for clients on monthly maintenance contracts, where I pass clients discounts for the promise of requiring regular ongoing work; they pay for only the actual service time they require. In such cases, both parties win, especially as the costs of obtaining a client decrease with each successive service call the client generates.

Some IT consultants are opposed to minimum fees, while others are out there charging 45 cents a mile just to show up. I believe instituting the flat minimum fee is more equitable, as no client should be penalized if I happen to be on the other side of town when they call needing help. As for services completed remotely, minimum charges still apply due to client acquisition, billing, and other costs associated with delivering service.

Where do you stand in the to charge vs. not to charge minimum services debate? If you do charge a minimum service fee, have clients ever balked at this practice? If so, do you provide clients with any reasons for your pricing practice other than the three I outline above? Share your experiences in the discussion.

Get weekly consulting tips in your inbox TechRepublic's IT Consultant newsletter, delivered each Monday, offers tips on how to attract customers, build your business, and increase your technical skills in order to get the job done. Automatically sign up today!

About

Erik Eckel owns and operates two technology companies. As a managing partner with Louisville Geek, he works daily as an IT consultant to assist small businesses in overcoming technology challenges and maximizing IT investments. He is also president o...

19 comments
dhill
dhill

It's Capitalism....very clearly..I can't wait until you take your car to a repair man, and they give it to you just like the IT tech....$500 to change your oil!

reisen55
reisen55

$150 just to show up at your door. Sometimes such a fee is then subtracted from a final invoice but in these times of rising gas prices, it is getting harder to justify client visits. Remote support is fine and I am glad I can use it but it is not for all jobs. I have a major patient management switch coming up at a major account in a month or so - NO WAY can that be done remote. A monthly fee, which I justify for on and offsite backup work, is a good place for a consulting-client commitment. There has to be something somewhere for the relationship and backups are the best place to go. Cheaper and faster than internet backup. Secure And I am the fellow who can RESTORE fully and completely. I strongly recommend consultants use backup and recover as a baseline for monthly fee. It works.

John_LI_IT_Guy
John_LI_IT_Guy

I agree with charging a minimum especially for an on-site visit. Other trades and professions seem to do it. I sometimes feel that people take IT skills and knowledge for granted and don't realize what it takes to stay current. It doesn't help when you have bottom feeders that promise low ball prices and spend more time criticizing the competition than telling prospective clients what it is they can do. I've not had any clients complain about a minimum. If they do their probably more trouble than their worth.

PMPsicle
PMPsicle

I don't usually have this problem since my clients hire me for months at a time. However, many, many years ago (uh, longer than that) when I had hair that wasn't grey I worked in the construction services industry. We tried (and had) several solutions to this issue. One method was to charge travel time from the last call to the next call. So a 1/4 hour on site could show as 1 hour. A second method was to charge a minimum 1 hour, on the assumption that most of our calls below that would average about 1/2 (the other 1/2 being travel). A third method was charge a separate travel charge (flat = to about 1/2 hour) and then charge actual on-site. A forth method was to charge a flat charge for the first 1/2 hour (equal to 1 hour) then actual after that. The fifth method was to build 1/2 hour travel into our rates. So if you were in our service area you paid a 50% premium. (Please note I'm just roughly calculating all methods would yield the same money at the end of the day) None of the techniques was perfect and none of them satisfied all our customers. Sometimes, you just got to go with what you feel is the fairest to the majority of your customers. Glen Ford, PMP http://www.trainingnow.ca

bergmanb
bergmanb

I agree with this as well. I have always done a first hour full rate and 1/4 hour increments after that. Plus I typically offer the client some freebie quick questions on the phone or email as a courtesy. But really they can Google anything they are going to ask me if they are that easy. But look at other professions like Electricians and Plumbers and others who all typically do a minimum rate. Their expertise warrants the cost. And that has been a standard practice for as long as I can remember. A Lawyer doesn't charge partial first hour rates (or any partial rates I believe) for their work.

JohnMcGrew
JohnMcGrew

...that I'd argue that your "overhead" costs such as advertising & etc should be built into your hourly fee. I generally charge by the 1/4-hour for phone and remote support time (although frequently less for high-volume clients) and hourly for local on-site, and by the day+ for out-of-town. I generally look at it as any time on a client that takes my attention away from other tasks is billable. A phone call that only takes 10 minutes may actually cost me 15 or more in diverted attention when you consider that it takes time to log the call and make notes, and get your mind back on focus on other interrupted tasks.

reisen55
reisen55

Minimum service fees are something I have done for a long time. I traditionally work on a retainer for standard service and calculate time and costs as close to reality as possible. Not easy. It also ensures constant contact between consultant and customer. God help the consultant who is called in ad-hoc after six months of change and his previous knowledge set of client site is now outdated. I use off-site backups as a minimum service option and it is far less expensive than Mozy or other outfits that charge HUGE numbers for such service.

-NaturaTek-
-NaturaTek-

As a IT tech that does outcall services, I relate to this article. It's good to open this up, I'll respond early in the morning.

MikeGall
MikeGall

seems reasonable. I'm a salaried employee but have dealt with a number of contractors. Especially big IT vendors charge a fortune. I seem to recall a Sun service call minimum 2 hours + travel time at $360. Phone support was something like $200 per problem/question, which I guess works out to a half hour (assuming the guys on the phone are billed out/worth the same as the onsite guys which might not be the case).

Erik Eckel
Erik Eckel

John, You're right, no doubt, that a majority of business costs must be captured within a consultant's regular hourly rate. We agree, certainly. It's just that there's a temptation, sometimes, to only charge clients for actual time, when in fact, the actual time on site is only part of the expense of delivering the service. Great comment, thanks again!

Sterling chip Camden
Sterling chip Camden

I charge in half-hour increments even for remote work. Why? Because a 10-minute interruption is equivalent to taking a half-hour off of whatever else I was doing, in terms of the ramp-up time required to get back to it. Half-hour increments help to prevent getting 18 Colombo-style 'oh just one more thing' phone calls from the same client. Since my clients are aware of my policy, they try to make use of the full half-hour -- which often results in giving more thought to the problem and preventing future ones.

sean
sean

....and don't forget to count your fingers after you have shaken hands with them... :)

reisen55
reisen55

Only $3000 to start up that one.

PMPsicle
PMPsicle

We covered a four city area (Hamilton, Dundas, Ancaster, Burlington for those who are familiar) where the city didn't actually stop. We could get from one end of the city to the other in about 20 minutes or less. We also scheduled work so travel time was in the area of 5-10 minutes. If a mechanic took longer than 1/2 hour to get to his next call we knew he was taking a coffee break.

reisen55
reisen55

I have two new accounts, nice medical offices clustered around a larger account, that use me as their "go to guy" when they have an issue. My card is there, they know I am good and call when they have issues. Not an arrangement I like, better than none at all of course. A minimum monthly fee, just for backup and offsite storage, is a winner. One I cannot do that with as they are accessing their primary application on-line over the net. The other I have been pushing forever and the owner is a flake of the first order. Just weird. Still, they are better than none at all.

Editor's Picks