In this podcast episode, Adam, Daniel, and Anne discuss the significance of legal agreements for Managed Service Providers (MSPs) and how they impact EBITDA. They discuss the inherent risks MSPs face, the importance of proactive use of contracts, and common pitfalls like revenue leakage from services out of scope. The conversation highlights the need for MSPs to educate their clients and align internal processes with contractual commitments. They emphasise that contracts are not merely for worst-case scenarios but are essential for mitigating risks and ensuring business success. The episode provides insights into how MSPs can better structure their agreements and services to protect both their businesses and clients.
00:00 Introduction
00:23 Connecting EBITDA and MSP Legal Agreements
01:11 The Importance of Contracts for MSPs
02:47 Proactive Use of Contracts
04:33 In Scope vs. Out of Scope
09:05 Onboarding and Initial Assessments
11:26 Managing Client Expectations
20:32 Adapting Contracts for Different Services
22:49 Global Differences in MSP Practices
28:12 Conclusion and Contact Information
Listen on Spotify or Apple Podcasts
Connect with Anne Hall LinkedIn by clicking here –https://www.linkedin.com/in/annehall-itagree
Connect with Daniel Welling on LinkedIn by clicking here – https://www.linkedin.com/in/danielwelling/
Connect with Adam Morris on LinkedIn by clicking here – https://www.linkedin.com/in/adamcmorris/
Visit The MSP Finance Team website, simply click here –https://www.mspfinanceteam.com/
MSP Glossary: MSP Finance Glossary Explained | MSP Finance Team
We look forward to catching up with you on the next one. Stay tuned!
Transcript;
Welcome to It’s A Numbers Game. I’m Adam Morris here with my co-host Daniel Welling. Today we are joined by Anne Hall, founder of it. Agree. Anne is an expert in MSP contracts and commercial risk, and helps MSPs around the globe solve their legal and client agreement challenges via an innovative as a service approach.
In this episode, we are drawing a clear line between your legal agreements and your EBITDA, and you’ll learn how to turn in scope versus outer scope from a leak into a margin protector, how to align contracts, processes, and team behaviour so you stop doing unpaid work and how to set client expectations around third party tools and liability without scaring off the sale.
So let’s get straight into it.
Daniel: Anne, welcome to the podcast.
Anne: Thanks very much. It’s great to be here and have the opportunity to talk with you.
Daniel: We’ve been looking forward to this for some time. Anne, we, like ships are passing the night, in internationally and, and, exhibitions. So, so we’re very happy to, to have made this, made this happen and, really interested as we were talking in the green room about. Really drawing a straight line to connect EBITDA and an MSP’s legal agreement. So maybe we could start there.
Anne: Sure. Perfect. Yeah, so straight in. So I think, you know, MSPs provide such amazing services and, you know, increasingly sophisticated and complex services. But in fact, there’s a lot of risk. And while the, you know, the great services is there, many MSPs, who turn their minds to the risks are often nervous about that. So those sorts of risks then can impact certainly their, their financial success, their in turn, their business growth. And of course, all of that is impacting that, that critical ratio between their revenue and their EBITDA. So it’s an area that I think is often, perhaps not, considered in terms of how contracts really work for MSPs.
Daniel: And I almost see the two topics almost running in parallel as well, almost associated to the maturity of an MSP. Um, the less. Less mature, less commercially aware. MSPs tend to not be focusing on the financial topics, but equally they’re not gonna be focusing on the legal topics as well.
They’re like, if I do a good job for my client, they’re gonna pay me and remain a client for a long time and everything’s great. Right.
Anne: Yeah, I think that’s true. You know, and often there are trigger points around that. That maturity level of the MSP, but I think no matter how mature the MSP is, there’s often the view that the contract is there for a worst case scenario. So they think, you know, if there are ever, you know, legal proceedings against my business, then you know, I hope that our contracts will save us. And, while they may or may not be using contracts, it’s, quite, alarming perhaps would be the word as to how many MSPs are not using contracts. And we are working globally. So we see that in all of the, the countries where we are working, as to how many are not using contracts. you know, and so that maturity level and that trigger comes in where, you know, they’ve gone, they’ve started to grow. they then think they need contracts, but still that perception, oftentimes that the contract is there for a worst case scenario. So we encourage them to reframe that perspective. And to see the contract really is not only that tool, you know that, and we hope they never, ever need, you know, need it for that purpose, of course.
But if MSP start to think about the contract as more of a proactive tool. For risk protection and really embrace that approach. There’s so much less likelihood, in fact of that worst case scenario ever occurring. You know, and there, there are a whole number of elements around, that viewpoint around the proactive use of contracts.
Daniel: it’s almost the same. Discussion debate that a an MSP might have with their client in turn about something like backup if, if you never, you never need it. You like, you question the value of it.
Anne: Well, potentially,
Daniel: you do need
Anne: yeah, but it’s,
in this case, you know, it’s not only that worst case scenario that contracts should be, considered for, you know, there’s a whole, there’s a whole bunch of risks and, in that MSP’s risk landscape. One is of course legal proceedings. and that very rarely happens.
You know, we’ve, most often hear from MSPs, you know, I’ve been in business for 20 years and we’ve never had a problem.
Daniel: Mm-hmm.
Anne: they mean is that they have never faced legal proceedings. Have they had problems? Absolutely. So you look at things like, you know, what are the responsibilities around reselling cloud services?
You know, when NCE was introduced a few years ago with MSPs reselling Microsoft 3 6 5, a whole lot of new risks came in for MSPs and causing, you know, some, some. Additional, you know, layers of risks for them. So those sorts of things. The old in scope, out of scope. And I’ve been, you know, working in this game around, IT contracts, you know, first of all through big law firms, then my own law practice focusing purely on IT law. And then with my current, The current business and that in scope, out of scope, is an age old problem and it just does not seem to go away. So that, often triggers a lot of areas of revenue leakage for businesses that don’t lead to litigation. But the MSP often steps in there, to keep the customer happy. And to avoid any, you know, unpleasant conversations, shall we say, steps in there fills that gap of the, out of scope work, which probably shouldn’t be done, as part of the monthly fee and thereby, you know, that revenue leakage issue appears. You know, so, so those are just a couple of the areas, you know, customers not taking up recommendations, risk a risk area again, so. there are a number of different risk areas causing revenue leakage, which do not give rise to legal proceedings. And hence the need to reframe that perspective around, you know, what do we think the value of the contract really is? You know, it’s not, I’ve done a deal, now I need a contract, which we quite often here. that education piece is vital for MSPs to understand a little bit about how contracts work. And how, and you know, to make sure they have valid contracts in place, but also to reflect on that. the service commitment and the understanding that their customers need to have around how they work.
You know, because if they’re just relying on trust, and that is very common, then the customer’s not getting that understanding of the service commitment and the basis on which the service is being delivered. And so then the customer relies on that assumption that they have, that they come in with. That everything is included, that the MSP is responsible for everything.
Daniel: So it’s having an agreement, but also making sure that it is policed and there is no early setting of a, an incorrect precedent, which then makes it harder to then police as well. So start starting as you mean to go on really.
Anne: Yeah. And I think that’s absolutely right. So even, you know, for site assessments. prior to onboarding a new customer, you know, an MSP needs to be careful about the basis on which they’re doing that site assessment. and thinking about. you know what? They need to agree with the customer right from the outset. And when I say agree, you know, the way then to put that agreement into, something that’s enforceable is what we call a contract, right? So you’re taking what you want to agree with the customer and putting that into a legally enforceable document. But I think the important element is for. MSPs to understand that’s exactly what the contract is.
So it’s not something that should be full of, legal mystique or indeed technical jargon. It should be something that both the Ms p and their customer readily understand because that’s what you are agreeing. Worrying.
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Adam: Can, and can you just, go into a bit more detail then, and I’m gonna pick the in scope out. Scope one because that’s a big one.
already mentioned it, it impacts, leakage considerably. so just paint a picture of here in, in some detail around the journey the MSP takes when discussing, this aspect with the client.
You know, the degree to which they openly discuss it at the start, how it is presented within the contract.
the extent to which this point is laboured almost so that problems don’t occur further down the road when the client asks us something out of scope.
Anne: Yeah. And I think that oftentimes it’s not laboured at all. It’s, a race to, you know, get that e-signature on the contract,
leaving the,
Adam: the tendency, yeah, the tendencies obviously smooth over, you know, these minor things around price increases and things being outta scope, right? Because no, no one wants to put a block up front when they’re looking for their client to be signed. So there’s an inherent tendency just to sort of smooth over that.
But of course. My experience was the reverse is true. You actually wanna bring these out so that you, don’t have future problems. but please take us through how you recommend approaching this.
Anne: Sure. So well, you have that initial site assessment and from there, you know, an onboarding or a proposal for the customer. So that initial site assessment when you’re going on and, you know, having a look at the IT environment for the customer. understanding, you know, their critical systems, you know, what they have at this, at that stage, and, you know, potentially what you are gonna recommend they move to. as soon as you are going in and looking and touching, you know, what they have. it certainly pays to have something in writing that’s, you know, essentially I’m gonna call it a contract. but that might sound a little scary, at that stage. it could be very brief, but it will just clarify the basis on what you’re going in.
It’ll make you appear very professional and it will give that clarity to the customer. This is the way that we’re gonna move forward. So you’re establishing that, that context right from the outset. Then, you’ve got a much better, picture from which to move into the onboarding. And on what basis are you doing the onboarding?
You know, if that’s going to just be wrapped into the monthly fee, it might take your monthly fee up higher than it might otherwise be. If it’s going to be an a, a, you know, a discreet onboarding, A piece of work at the outset, you know, then that’s what your contract needs to cover off. So I think the important thing is that, you know, we’ve seen, MSPs really, cover both of those elements without. sharing with the customer that, you know, this is valuable work, whether or not they’re charging for it, you know, so you can put a price on it and potentially, discount that price or say you are going to, wrap it in some way if they move ahead with you. But to come in and do, for example, a couple of days work. of assessment and then, you know, before you prepare a proposal. I mean, how many professionals do you go to who would do that? You know, sure there’s a pre-sales element, but as I say to people, you know, would you go along to a new dentist? And they say, well, we’ll do some examinations. We’ll do some x-rays, it’ll take a couple of hours and we won’t charge you. You know, it just doesn’t happen. So, when you start out, I think set that expectation clearly as to how this relationship is gonna proceed. I think that many MSPs would be, Perhaps surprised as to how the customer would respond to that because customers, you know, are potentially being left a little in the dark in some cases. and that, you know, trust me kind of model, is perhaps a bit, makes the customers a bit nervous. So moving on from there, there are a whole raft of elements which are often grey areas. And that need to be ironed out. And those grey areas often come at the cost of the MSP.
Adam: and just moving forward from the initial onboarding phase, site assessment phase into the thick of the actual contract. So the initial work is done. the MSP says, here we are. it’s $3,000 a month. this is what you get. This is what you don’t get. just how, I mean, is it that straightforward for you or is there something more about this that needs to be tackled?
Anne: Well, the complexity of the service, is, you know, is, quite a big topic
and it’s not something that can be simply, you know, here is, the monthly fee and here’s the service. there’s what is the service being provided in respect of. What’s involved in that managed IT environment and how do you go about making changes? Because change is inevitable in, in what’s being looked after, shall we say. the elements around what is included in the managed service, you know. typically there’s huge dependence on third party services, which is a really important element. So if you look at, you know, one MSP that came to us and said they had, you know, included managed firewall and their managed service, and then there had been an issue for that particular customer. And the customer was completely unhappy even though that particular MSP had gone in and remediated really quickly. Now. If you look at that firewall is provided by a third party. And on what basis? If you were to look at the typical contract or terms and conditions being put out by those third party vendors, and in that particular case, we had a look at it and the vendor in their contract, Expressly said they, they gave no representation, warranty, or an indemnity or indemnity that the product which was a firewall would detect, identify, or dis or disable anything harmful. So if you think about that for a minute, the vendor is not taking full responsibility for the product far from it, and so certainly nor should. The SP so that the, those sorts of elements, need to be carefully considered. and it’s not only the products that are, that the MSP is including in their stack, which are often not, you know, not made that visible to the customer, to be honest, you know. providing a backup service on what basis?
What’s actually behind that without, you know, and it’s often with contract, drafting a matter of, you know, where are the risks and how far do you need to go, you know?
Daniel: and of course, if you don’t limit your liability in that way, then. pres presumably who, whomever is insuring you, assuming that it went legal and then you required the insurance. wouldn’t also, like they’re relying on you to have the first layer of defence from a legal perspective.
Anne: Yeah, so you know, as I said earlier. if you’re headed into litigation, it’s really, you know, a very unfortunate situation and not one that I would wish upon anyone. I think it’s, it’s inevitably incredibly stressful and time consuming, and expensive as well. and so the approach of looking at things proactively and helping customers to understand that this service is built on. A bunch of third party services, which you are not fully responsible for. You know, the MSP is coming in and it’s not the case that the MSP should then be taking on all the risk that the customer inherently has in running a business. A business that’s dependent on technology as pretty much all businesses are. What the MSP needs to convey to the customer is that the MSP is there to support and to mitigate some of that risk, not to take it all on, you know? And so I think that, if customers can begin to understand that. As a position from the MSP, then it really helps the relationship. and so you simply don’t get to those sorts of situations, so long as your contract is there supporting that position as well.
Okay.
Daniel: and of course, baking this into those early educational conversations with the client then actually supports the, the elephant in the room, which is price. And, and how much should you know, we’ve, we’ve included this, this lower priced firewall option. There are higher priced options, which may or may not provide or afford a different level of protection, but the client is making that conscious decision along with the support from the MSP. I’m, I don’t wanna not have a firewall, but I can’t afford. The best firewall. so, talk me through what the options are and ultimately, you know, find that, that right balance between, between what the client is prepared to spend and what risks they accept they, they take on as a result.
Anne: Absolutely. Yes. So, and I think, you know, another important element is around. the living and breathing of the contract. So what I mean by that is, you know, you could have the best contract in the world, but if your team is not behaving in a way that’s consistent with what’s in that contract, it’s not gonna help you in anywhere near the same way. So if you then, you know, have your team, you know, still potentially handling out of scope tickets at no additional cost or handling projects, even though they might be small projects as part of the managed service, when they should not be, that is not going to support your cause in, getting together contracts that actually can support, A reduction in that, in those areas of revenue leakage. So it’s about having your agreements and your processes in sync. And that doesn’t mean team members need to study the contract, it just means they need to be, working in a way that’s consistent with what’s being agreed.
Daniel: A a. Absolutely. and again, this all feeds into that. level of maturity that the MSP the is exercising across, you know, the control they have across their whole business. from operations, sales, account management, commercial.
Adam: I, I was just gonna say, I mean, for me, this component around. Educating your team, spills over into the account management team to educate the client on an ongoing basis. I don’t think it ever stops to some extent. And it’s alongside the education of the technology and the roadmap and, you know, whatever else.
There’s also the education on. Just so we’re clear, you don’t get this included in your, or you can eat managed service. This is outside of scope. you know, a new printer to be installed isn’t free of charge. That’s a new. That’s called an installation or a new,
and that’s extra. so, and I think, it’s a good habit to get into where the, you are kind of bringing the client on board with that education.
You are working in partnership, you’re explaining from the outset, you know what, this can be confusing. It is complicated. It does change. so it’s an ongoing kind of process to keep the client kind of involved in that from a partnership approach. You know, it’s like, you know what, we’re looking to help each other here.
We’re looking to remove ambiguity. We’re looking to, you know, and that’s of course where it also then spills over into the budget planning, I suppose, as well. Because you know what, hang on a second, Adam. I thought this was an all you can eat. Well, it is, but nothing’s all you can eat, right. and you are changing your business all the time, and there’s new costs coming in all the time.
So we need to make sure we are building a budget appropriately to plan for that. And I think that’s where it kind of comes full circle to some extent, alongside the legal piece.
Anne: Yeah. So you mentioned change there a couple of times, Adam, and you get change of course in what’s going on with the customer, and also in what’s going on with the service. So. contracts need to be able to work with changes of all sorts, and you don’t want to have to necessarily, put new contracts in front of customers every time you, you make a change of some sort. that said, there are certainly times when you would need to, if you’ve got different types of services that you are adding. But the contracts need to reflect that reality of change and change of many types. You know, I did mention just then about contracts for different types of services, and I think that’s also really a really important topic because, you know, gone are the days when one contract or one set of terms and conditions could be suitable. For the range of services that, that MSPs are providing today. You know, so we’ve obviously got managed services, but let’s face it, many of them, you know, have not got all of their customers onto the monthly managed service plan. And so they’ll be providing support in other ways as well. And even though there might not be fixed term. contracts as such are required for those other services. If you’re providing reactive services, you know, to a group of your customers, then you certainly want to have contracts. In place for that as well. You know, again, if you think about what the customer, might be assuming and expecting when you’re providing that more ad hoc support, you know, you wanna really tidy up on, getting those expectations, you know, more aligned with what’s actually going on. but you know, that’s a simple kind of situation. If you’ve then got, you know, lease lines or other types of internet services you are reselling to the customers, that’s a completely different type of contract that’s required if you’re reselling 3, 6, 5, as most are, you know, sometimes. MSPs are putting that into their managed service as part of the stack, but probably more often not. So that whole reselling activity, especially with Microsoft 3 6 5 under NCA needs a specific contract, to protect against, you know, to help communicate how that actually works, in a contractual context, but also to protect, yes.
Daniel: do you, do you see, um, diff differences across your global estate in terms of how, how bundles are, implemented? So for example, if you include a Microsoft license within. your service then, I cer certainly I see some people, advocating that. Absolutely.
And others, no, it should be separate, but we do wanna provide guidance around which subscription to have, so, you know, whether it’s standard or premium. And, and of course over time this will change because Microsoft are continually evolving and changing their platform.
yeah. how do you see that different, differentiation across the, the estate?
Anne: Yeah. So I think, well in the US they tend to have a far more included in their stack than in the UK typically. yeah. So we do see variances and I think we are seeing more now, a stronger level of cybersecurity being in effect mandatory in the managed service. but still. those MSPs wanting to, clearly delineate that cybersecurity service as part of the managed service.
So we, we structure the agreements accordingly, and really it’s a matter of working with, whatever, whichever model or way of providing service that the MSP wants to work with, making sure that they’ve got the right sorts of contracts to support that. So, yeah, we do definitely see differences. it’s not that everyone, moves and adapts in the same speed, but there, and there are certainly trends.
So when people start asking for a different type of model for a managed services agreement, we then start seeing others asking for the same thing as well.
Daniel: Yeah, there’s lots of, cha chatting, al always going on between MSPs. So you sort of get, get an idea. it proves it works, and then you sort of see it flood the, the community.
Anne: That’s right. That’s right.
Daniel: but so yeah, it’s a really interesting point. You make that a, actually, the, the stack.
if you were aiming for a single price. Uh, a solution now has so many different components, that, that, yeah, it’s very difficult to get one, one, agreement for all of those. although that doesn’t necessarily stop the MSP. From a sales perspective, presenting it as a singular solution from a price or a budget perspective.
And then, so this was gonna cost 300 pounds, for example, but here’s three 100 pound agreements maybe. Is that,
do you see
Anne: Yeah. Well, I think that it’s important to, to let the customer see into the different types of services and in effect, to put a boundary around each of the services so that the customer is not, you know. blindly accepting, here’s the service and here’s the price per month, but actually breaking down what we call the barrier of expertise that otherwise exists between the MSP and the customer.
And what I mean by that is, you know, the customers, get a perspective of the MSP and their skills, experience, expertise, and, you know, and they trust them. You know, which is great, that trust is important. In fact, it’s essential, but the trust alone will cause problems. So allowing the customer in and seeing, you know, to a greater level, what’s, what is, what are the services that you’re providing? What’s included? What’s the reliance on third party services looking like? Not only what you are reselling, but you know. You’re gonna put something on their devices and on what basis, you know, what’s going on there? and so breaking down deliberately and consciously breaking down that barrier of expertise so that the customer has a greater understanding going in and can’t blindly then have assumptions and expectations that don’t line up with what you would want.
Daniel: So what I’m seeing in my mind as as a way of reconciling perhaps the demand for simplicity that a client. An MSP might want to exercise from a sales perspective, and then the. The education of the client and then the legal and commercial implications. So almost if you had listed and you could just click to expand at each level.
So this this service includes Microsoft, it includes a cyber solution. It includes a da, data integrity, a business continuity. And you click on it and then that reveals that, oh, and by the way, we are doing this with. third party X and their terms and conditions are gonna be mirrored. And you go here to see that.
and that, that sort of model.
Do
Anne: Well, there’s, you know, the level of granularity needs to be assessed in light of the risks, shall we say. You know, and it’s not necessarily the case that we advocate. You know, or recommend that an MSP would share all the details, with the customer in their contract about, you know, which endpoint protection, vendor they’re using.
You know, again, you wanna re retain flexibility, so you could do that, but you could choose not to and still have, you know, an appropriate level of, clarity around that,
Daniel: Got it.
Anne: you know?
Daniel: Yeah. Interesting. we could pro, probably spend another three hours for, but we, we’re pretty much on, on our time budget for this episode. It’s been really interesting talking to you. around this time. we offer our guests a shameless plug. So, if anyone wants to carry on that conversation, maybe not for another three hours, how best to get hold of you.
Anne: Okay. So, they could go to our site@itagree.com and very welcome to schedule a call there. and that would probably be the best way, you know, very happy to have discussions with any MSPs.
Daniel: Very good and not to date the recording of this episode, but, this might actually come out after you’ve, you’ve been, visiting the uk, in October.
but yeah, we look forward to, to hopefully catching up with you then and, and continuing the, the ongoing debate about how, how legal, is, is such an important topic for MSPs.
And, I look forward to seeing you at, forthcoming events. Thank you very much.
Anne: Thank you very much for having me. It was great. Great to talk with you.
Adam: Thank you.
Anne: Thanks, Adam. Thanks Daniel.