Flat-rate vs hourly MSP pricing: how to compare them on one client

Hourly billing looks safer than a flat fee and usually is not. To compare flat rate vs hourly MSP pricing on one client, add up the hours you actually spent last year, including the ones you never invoiced, cost them at your real loaded rate, then set a monthly fee that covers that work plus margin and a buffer for bad months. Whichever model leaves more margin after honest accounting wins. Here is how to run that comparison, step by step.

Why hourly billing feels safe and quietly leaks

The appeal of hourly is obvious: every hour worked is an hour paid. The trouble is that a lot of hours never make it to an invoice, because nobody bills for them or because billing them would start an argument.

The common leaks are predictable:

• The five-minute fixes. A password reset, a quick look at a printer, a call that ends in "oh, it's working now". Technicians rarely log these, and owners rarely bill them, so they disappear.
• Proactive work. Patching, checking backups, reviewing alerts. Under break-fix, the client did not ask for it, so charging for it feels awkward. Either you do it free or you do not do it, and the second option creates the outages you then bill for.
• Written-off disputes. When a client queries an invoice, the path of least resistance is a credit note. Each one is small. Together they are not.
• Collection time. Chasing many small, variable invoices costs admin time that never appears on the client's account.

There is also a structural problem. Hourly billing pays you most when the client's IT is worst, which means doing your job well shrinks your revenue. It is a model that rewards fires.

Where flat-rate pricing gets underpriced

Flat-rate fixes the incentive, but it has its own failure mode: you guess the fee, the guess is low, and you discover it twelve months later. A fixed fee is a promise to absorb variance, and if you have not measured the variance you are guessing in a spreadsheet's clothes.

Underpricing tends to come from three places:

• Pricing from last year's invoices, not last year's hours. The invoices miss everything that leaked, which is exactly the work the flat fee now commits you to.
• Ignoring onboarding. The first months of a managed contract are heavier: standardising machines, fixing years of neglect, documenting the estate.
• Vague scope. If "unlimited support" includes projects, new starters' hardware and the owner's home printer, the fee will never be enough.

Working one client through both models

Take an illustrative client: a 20-person office, 22 devices, one server, Microsoft 365. The numbers below are invented for the example, not drawn from any real business, so substitute your own.

Step 1: count every hour, not every invoiced hour

Pull last year's tickets and time entries, then add an honest estimate for unlogged work. Say the invoices show 60 hours, but the ticket log and technician estimates put the true figure at 90. That 30-hour gap is the first thing hourly billing was hiding.

Step 2: cost the hours at your loaded rate

Your loaded cost per hour is wages plus employment costs, tooling, overheads and non-billable time, divided by the hours a technician can realistically bill. If that comes to £40 an hour, the true cost of serving this client was 90 × £40 = £3,600 a year.

Step 3: compare what hourly actually earned

At an £80 hourly rate, 60 billed hours brought in £4,800. Subtract write-offs, say £300, and you have £4,500. Margin: £4,500 minus £3,600, or £900 on a year's work. That is 20 per cent, and it depends on the client continuing to have problems.

Step 4: set the flat fee with a buffer

Build the fee from cost, not from the market's going rate: expected hours plus proactive hours, at loaded cost, plus your target margin, plus a buffer for a bad year. Then sanity-check it per device. £450 across 22 devices is about £20 a device a month. If you want to run the same sum for your whole client list, the MSP pricing calculator does it per device, and the tooling part of your cost is worth checking against our guide to MSP tooling cost per endpoint.

The two tests that decide it

The leak test: if the gap between hours worked and hours invoiced is more than a small fraction, hourly is already costing you, and a flat fee captures that work honestly.

The variance test: look at the client's hours month by month. If one bad month is several times a normal one, price the flat fee from the average plus a buffer, or keep projects and major incidents outside the fee. If hours swing wildly and you cannot explain why, you are not ready to fix a price yet; spend a quarter logging properly first.

Failure modes, side by side

Hourly fails silently. Flat-rate fails visibly, which makes it easier to fix: you can re-price at renewal with a year of real data behind you.

Moving an existing client across

Present the change in terms of what the client gets: predictable spend, proactive patching and monitoring, and no hesitation about calling you. Define scope in writing, including what counts as a project. Agree a review point after the first few months so both sides can adjust if the fee was wrong. Keep logging time even under the flat fee, because next year's price depends on it.

Where this fits with Helios

Most of this exercise is discipline, not tooling: logging time honestly and defining scope. Helios helps with the measuring part, combining monitoring, patching, a helpdesk with SLA clocks and time tracking in one platform, with billing into Xero or QuickBooks, so you can see hours per client against what you charge. It also prices itself by fleet size rather than per technician, which keeps your own cost per device predictable as you build flat fees on top of it. You can see the current rates on the Helios pricing page.

Common questions about flat-rate and hourly MSP pricing

Should I keep any clients on hourly billing?

Hourly billing still suits clients who call rarely, refuse proactive work, or need occasional ad hoc help where a monthly commitment makes no sense. The risk is that these clients consume time you cannot predict. Many MSPs keep hourly as a deliberately higher rate, so that the flat-rate managed agreement is clearly the better deal for anyone who calls regularly.

What should a flat-rate MSP fee exclude?

A flat-rate MSP fee usually excludes projects such as migrations and office moves, new hardware and its setup, third-party software licences, and work outside agreed hours. Writing these exclusions into the agreement protects the margin you calculated. Without them, a single large piece of work can absorb a year of profit from that client's fixed fee.

How often should I review a client's flat monthly fee?

Reviewing a client's flat monthly fee once a year, at renewal, is a sensible baseline, with an extra check a few months after moving a client from hourly. Compare logged hours against the fee each time. If the client consistently costs more than planned, re-price or tighten scope rather than absorbing the loss quietly.

Researched and written with Helio SEO, our AI writer for business blogs.