Pros and Cons of Managed IT Services Contract Lengths

Once you decide to pursue managed IT services, you’ll need to start thinking about what’s critical for your business when it comes to the formal agreement.   managed IT services contract

All Managed IT service providers (MSPs) provide solutions and support to maintain your IT environment. However, the exact details of a contract – including term length — varies from MSP to MSP.  

In general, the most common contract terms you’ll find from MSPs are for 1, 3, or 5 years.  

Keep in mind that MSPs may offer all three options or, like The KR Group, only offer one option. (Our managed services contracts are only available in 3-year terms.) 

Regardless, you should find the time commitment that works best for your company. To help you understand what the different options may look like, you might consider these pros and cons:

  1. One-year contracts have the least commitment. However, this option isn’t available from every MSP, and there are no financial incentives. 
  2. Three-year contracts allow you to finance projects with your subscription fee, but that time commitment may be too long for some organizations.  
  3. Five-year contracts provide a high return on investment, but with technology, your solutions may be outdated or obsolete by the end of your contract. 

In reality, there isn’t one contract term that is better than the others. Instead, you’ll want to read through the following information to determine what makes the most sense for your business. From there, you can search for an MSP that will meet your needs.  

If you want to know more about our contracts, check out our guide to signing up for managed IT services.

One-Year Managed IT Services Contract

MSPs require some commitment from you for their services, and the shortest contract term you’ll find is for a year.  

If you’re concerned that managed IT services might not be right for you, know that most MSPs offer an initial phase where you can terminate the managed IT services agreement without having to pay the remainder of the term. Depending on your provider, this might be 30, 60, or 90 days.  

Beyond that period, you’ll be signing a contract and obligated to pay for a set amount of time. 

Pros of a 1-year contract

managed IT services contract

With a 1-year contract, you can make a short-term commitment. This option often makes sense if you’re unsure if managed services are the best option for you and want to test the waters before making a multi-year commitment.  

Another situation when 1-year contracts make sense is if your company is expecting to outgrow your MSP or you intend to rely on an MSP temporarily (for a year) while planning and recruiting for an in-house IT department. 

Cons of a 1-year contract

When it comes to cost, a 1-year contract doesn’t offer any financial incentives since it is the minimum requirement, and not all MSPs offer a single year term. 

This includes The KR Group, who is moving away from the option of 1-year contracts with our newest iteration of our managed IT services agreement. Instead, we’ve shifted to focus on 3-year contracts, which you’ll read about next.  

Three-Year Managed IT Services Contract

If a 1-year contract feels too short and a 5-year contract feels too long, a 3-year contract might offer the “just right” option for your business. 

With this option, you’ll receive the following level of service:  

  • Dedicated account support – Your MSP engineer(s) gets to know the intricacies of your network and identify problems quickly. 
  • Stronger partnerships – With a 3-year contract, you have multiple years to establish a relationship and understand how your MSP handles requests.  
  • Increased security – As your MSP recognizes users and activity across your network, they can detect anomalies more efficiently.  

Pros of a 3-year contract

For agreeing to longer contract terms, many MSPs offer financial incentives.  managed IT services contract

One of the more common examples of this is the ability to finance IT projects throughout your managed services contract.  

Suppose your MSP determines you need to update a specific portion of your IT environment, or you already have a project in mind. Instead of paying between $10,000 and $30,000 upfront, your MSP can spread out this cost over the 3-year term and incorporate it into your monthly rate.  

Additionally, any new projects you complete during your time with your MSP comes with a 25% discount on labor.  

Cons of a 3-year contract

While the 3-year contract is frequently the sweet spot for businesses, there’s always an exception.  

For example, if you’re looking to sell your business in the next 3 years, you might not want to be tied to a contract that will outlive your ownership of the business. You may find a shorter agreement more appealing.  

Five-Year Managed IT Services Contract

If you’re looking to commit to an MSP for a while and don’t anticipate wanting to switch providers, you might consider a 5-year contract.

However, 5 years is a long time when it comes to technology, and you’ll want to ask your MSP how they help you with refresh cycles and system updates if you pursue this option.  

 

Pros of a 5-year contract

In general, there are many advantages with longer-term contracts, and they often provide the best return on investment. Plus, a 5-year contract allows the most time to work toward and enjoy benefits, such as set prices, increased security, relationship building, and more. 

As with 3-year contracts, many MSPs offer competitive pricing for customers to agree to a 5-year contract, including discounted labor for IT projects outside of your contract.  

Cons of a 5-year contract

managed IT services contract If things do go awry with your MSP, though, you’ll be committed to 5 years with them. 

And for you to leave your contract prematurely, you’ll have to pay out the remainder of the contract. That will cost you more than if you made the decision at the same point in a shorter contract.  

Additionally, technology gets better at an accelerated rate. According to Moore’s Law, about every year and a half, computer processing speed doubles. So, the amount of improvement made in 18 months, is then made in 9 months.  

How does this relate to drawbacks of a 5-year managed IT services contract? Before signing a contract for this long, you’ll want to know how your MSP plans to help you stay current with ever-evolving technology.  

Picking the Best Term for your Business

At the end of the day, the service length you decide is right for you depends on what you’re comfortable with.  

If you want to make the longest possible commitment and are comfortable talking to the MSP about possible risks, a 5-year contract provides the best value.  

However, if you have reservations about managed IT services or your future provider a 1-year contract can serve as an extended trial period to allow you to test and see if it’ll meet your needs. 

Most organizations will find 3 years to be the ideal term for their managed IT services agreement. With this option MSPs have time to improve your organization and provide increased value.  

So as you’re considering signing up for 1, 3 or 5 years of managed IT services, here are questions you should ask yourself: 

  • Will managed IT services be a long-term or short-term IT solution?  
  • Are you a growing business? If so, how soon do you expect to outgrow your MSP?  
  • Are you willing to sign up for a longer term in exchange for price advantages?  

Your answers to these questions will guide you on determining if a 1-, 3-, or 5-year contract is the best fit for you. 

Learn more about what The KR Group’s managed IT services division offer in this free guide to signing a managed IT services contract. 

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