How to Differentiate Your MSP Business From Competition
The rapid growth of the managed services industry is being fueled by global organizations’ increasing adoption of IoT, cloud computing and data analytics. For many businesses, it’s all a part of their digital transformation strategy in the wake of the COVID-19 pandemic.
This growth surely seems like a golden opportunity for managed service providers (MSPs), but it also means increased competition and downward price pressure. The new normal has afforded open boundaries for MSPs, allowing them to tap into different geographical and vertical markets to sell their services. But since service providers these days have a low entry barrier, prospective customers get the opportunity to compare their options.
To stand out from the noise, you need well-defined competitive differentiators for your MSP. These differentiators tell your customers how your business is better than others in the market and what value you have to offer them. They should also encompass one or more characteristics that your key competitors lack, and promote of these characteristics to attract prospective clients to buy from you.
Common Competitive Differentiators Every MSP Service Claims to Offer
What do you offer customers that makes you different from your competitors? You might be surprised to know that many MSPs don’t have a convincing answer to this question.
As you meet with business owners and executives to encourage them to place their trust in your managed services, you need to make a lasting impression. Claims of offering extensive experience, expertise and the promise of ultimate customer satisfaction do very little to compel your prospects to choose your services. Although these characteristics are essential, they are merely strengths that serve as minimum barriers to entry in the managed services industry—not competitive differentiators.
Ranging from cloud-backed systems, disaster management, infrastructure transitions, or strategic consulting services, MSP services offer more or less the same solutions. As a services-based business that resells products, it can therefore be hard to distinguish your offerings from the competition. This is all the more true when everyone is selling the same products and promising similar services.
So, when prospective customers sit down to compare MSP A, B and C, what differentiators set you apart from your competitors, compelling them to choose you over everyone else? Let’s explore a few options.
Identifying Competitive Differentiators for MSPs
Here are three steps to consider.
1. Differentiation by Specialization: To carve out a differentiated position in a saturated managed services market, you need to focus on specialization. A few tips:
- Don’t compete on price: From your customer’s perspective, MSPs offer commoditized products that seem similar to services provided by competitors. In this situation, the only differentiator that you can focus on is the price. To stand out, you’ll be forced to offer your services at a more affordable rate than your competitors. But to maintain prices in a pandemic when businesses are cutting costs, you need to create emotional value. Position your offering as a critical service customers can’t do without, instead of competing with other MSPs on price.
- Create additional layers of value: Many MSPs ask how they can add value to their services when selling commoditized products. To create competitive differentiators for your business, you need to build packaged offers that represent additional layers of value to your services. These package offerings will deliver added efficiency and tools for customers, while also boosting your profit margins. Focus on what you do best, package it with unique elements, and offer additional services that are personalized to each client’s requirements. That’s the key to becoming a value-based MSP!
2. Explore your Core Competencies: By identifying your MSP’s core competencies, you can determine the real value of your business. This exercise allows you to explore and improve the unique elements that give your company a competitive advantage.
To do that, you need to assess your expertise from all your years in the managed services industry and IT channel. Determine what you learned from your experiences that your competitors did not. This puts you in a unique position to offer real value.
Next, leverage your core competencies by packaging your expertise in a way that sets you apart from the competition, and places you as a value-based managed services provider in the market. To do this, you’ll need to assess what your competitors are touting about their services to determine how you can set your business apart from theirs.
3. Consider Vertical Specializations For further differentiation based on specialization, you need to create a vertical go-to-market strategy that encompasses two different areas:
- Industry expertise: the industry niches you cater your managed services to
- Customer problem areas: services that solve specific problems that your target audience struggles with
How to go about choosing verticals to serve? One way is to offer your services to industries that give you a competitive advantage; another is to scale current markets you’re already in, in order to gain a greater share. You could also skim through your customer list and observe which industry niches they belong to. For example, you might be catering to a medical device company that refers you to another company in their niche. Before you know it, you’ve created an accidental vertical where you’re catering to a specific niche within the healthcare industry
Why Going Vertical Helps With Competitive Differentiation
Taking a more vertical approach to differentiating your managed services can also allow you to gain more referrals and build stronger relationships with existing customers. When you focus on a specific industry niche, you can speak to clients in their language and deliver quality services while assisting them with their queries.
On the other hand, if you have a horizontal market approach where you’re catering your services to everyone, you can only get around a 20% win rate.
Focusing on a specific industry niche may seem ineffective at first, but you get to experience shorter sales cycles and a higher competitive advantage to earn your target audience’s trust. One of the major reasons most MSPs turn to vertical specialization is an increase in customer demand requiring specific domain expertise. Revenue opportunities is another reason why a vertical strategy is a good idea; most businesses within the same niche will have the same same requirements, making it easy to become proficient in serving them.
How to shift towards a vertical market approach: If you’re currently reselling products using a horizontal market strategy, you can easily shift towards a more vertical approach by simply creating dedicated landing pages or specifying the industries you want to cater to on your website. Highlight your core competencies and the quality of services that you offer. Package those services with other important tools and assets to provide more value to customers.
After that, compel your customers to ask for more functionality for the services you’re offering them currently. Leverage different processes or workflow management systems that can further assist their businesses. After targeting a specific industry, you can offer deeper and more sophisticated integrations for a particular niche as your vertical specialization strategy, with your defined competitive differentiators supporting your growth
Get more guidance for your MSP business
Looking for more expert guidance on how to put your business on the path to profitability? Sherweb offers programs and resources to turbo-charge your growth. Check out our MBA for MSPs, or get in touch with us to learn more about strategic tools we can equip you with.