When I was growing up my father used to refer to our boat as a hole you throw money into. You probably have something like a boat; something that continually eats away at the bottom line. When it comes to selling support work, there are several holes I’ve identified. Things to avoid if you want to produce hard-dollar profit:
1. Selling managed services with a contractual agreement to be on site. Make sure your fee is high enough to include the cost of staff augmentation if you do this. In most cases it is unnecessary.
2. Selling on site support or engineering (staff augmentation) with a commitment to be on site two or three days per week. This is especially bad when the person is to be there every other day – it is nearly impossible to fill the other days. This is break-even at best. Another trap is selling half days. What will they do the other half?
3. Billing a client for three hours. You’ll never recover that 4th hour before lunch or the end of the day.
4. Support calls with no minimum charge.
5. A close second is, too small of a minimum charge. Consider two hours…if the engineer has to drive an hour in traffic one way, the support call will be break-even at best.
6. Not understanding burden cost. If a support engineer drives two hours (there and back) between every two hour minimum time call, the profit is zero in most cases. Move to contracted managed support with annual contracts, spread your risk, and make sure your fees cover your cost with the required profit.
7. Converting support calls to managed contracts without a clear understanding of your cost and profit. Once converted, good luck increasing prices! You should be making more on managed contracts, not less.
© 2010, David Stelzl