How Much Could MSP, VAR Revenues Fall In A Recession?
MSP businesses stabilized a bit in late April and early May 2020. But if the economy truly takes a hard and extended tumble, many MSPs (managed IT services providers) may underestimating the potential financial impact to their businesses, ChannelE2E believes.
Skeptical? Consider a few factoids from Paul Dippell, CEO of Service Leadership Inc. To be clear: Neither Dippell nor Service Leadership are predicting a recession. But they do have some rather revealing data culled from earlier economic downturns — including the financial crisis of 2008, the dot-com implosion of 2001, and much more.
In the typical recession, VARs see their product revenues drop about 45 percent, and MSPs see their monthly recurring revenue (MRR) drop 20 percent, Service Leadership estimates.
Now, toss in another major factoid: Roughly 25 percent of IT solutions providers ran break-even or money losing businesses as of Q4 2019 — before the coronavirus pandemic undermined the economy. To me, that’s alarming stat considering 2019 was one of the strongest economies in recent memory. So what happens to those break-evcn or money losing MSPs, VARs and ITSPs if a recession strikes? I suspect the answer could be ugly.
Memo to MSPs: Do This Right Now
Again, Service Leadership is not in the business of predicting macro-economic trends. Nor is the consulting firm trying to spread doom and gloom. Still, it pays to be proactive. With that thought in mind, Service Leadership is urging IT solutions providers to:
- Re-forecast their business — for each month — through the end of 2020.
- Include a best-case, mid-case and worst-case forecast scenario for each month of 2020.
- From there, develop a financial plan that ensures your business can remain profitable in each scenario (best-, mid- and worse-case) in every month of 2020.
What dials can you turn to adjust your monthly cost structure? Check in with Dippell for some recommendations, or grab Service Leadership’s Rapid Recovery Planning Guide for more guidance. Note: Dippell shared many recommendations during ChannelE2E’s May 2020 webcast, which is now available on-demand.