MSP 101: Four Effective Steps to Building a Managed Services Business
Last month, we asked, “Just Who Do You Think You Are?”. In that post we dove into the IT channel and examined two of its most prominent reseller classes, the Managed Service Provider (MSP) and Value-Added Reseller (VAR). This month we want to take a deeper dive into the managed services side of the IT channel.
It is expected that by the year 2019 the global market for managed services will grow to $193.34 billion with North America expected to be the largest MSP market in terms of revenues generated. The anticipated growth presents a huge opportunity for any IT professional looking to join the channel or veteran MSPs looking for good news about the future of their business.
We at VIPRE Security recognize that starting, building, and maintaining an effective IT managed services business is one of the most unique challenges and undertakings anyone can face. So, we built this short list of 4 steps a MSP must take to build an effective business under the managed services model.
1. Make Excellence in Customer Support a Priority
Outstanding technical support is what we believe to be the first key to success as an IT Managed Services Provider. As a MSP, your primary goal is to become a cost-efficient and effective center of excellence that your clients can rely on when experiencing technical issues. While some incidents will warrant an on-site visit, most of the technical support from your organization can be provided remotely. This can be achieved using Remote Monitoring and Management or RMM software to help increase your efficiencies, respond faster to any security incidents, and generally increase your profitability. Working with RMM software can reduce support ticket times and provide additional revenue streams with help desk support through recurring revenue.
2. Clearly Define Your Managed Services Strategy
With the expected market growth in managed services mentioned earlier, it becomes more imperative than ever to set yourself apart from the competition. To set yourself apart you must first take time to define the specific problem you’re trying to solve in your market. Once you understand the problems facing your target customer you will be able to provide solutions that are specific and worth paying for in their eyes; your unique value proposition.
Another area to consider in better defining your business strategy and what type of MSP you want to be (SMB, Midmarket/Enterprise, Telco, Cloud Service Provider, Global Systems Integrator, IT Consulting Firm, etc.) By doing so you can even further focus your business on a specific market to streamline your managed services strategy for maximum revenue.
3. Develop and Fine-Tune a Pricing Model that Works for Your Business
Everyone’s favorite part about being a business-owner…making money!
When establishing pricing, begin with your breakeven cost and the cost of delivery. Once that is discovered, evaluate the difference between the costs of an in-house staff and your managed IT services. This will allow you to explain your solution in terms prospective customers will understand.
Once all prior steps are completed, standardize the pricing of your core offering. Once you know what the regular and extra costs are, you can go to market faster with your solution. All this will allow you to decide on vendors to develop successful pricing and in turn you’ll shorten your sales cycle. Selling becomes easier and repeatable, enabling you to scale your operations at a quicker rate.
Some of the most popular ways by which MSPs price their services are:
- Per-User Pricing Model: The most flexible pricing model. It is designed for businesses that have employees who work with many devices. When utilizing this pricing strategy, define a price that covers all possible services per user.
- Flat Fee Pricing Model: Utilizing this model allows you to offer all your services for a flat-fee and prioritizes the customer experience. This option is best for MSPs who outsource IT for their clients.
- Monitoring-Only Pricing Model: If you choose to pursue a market that doesn’t require too much maintenance, you should pursue this model. You can use this model to track specific aspects of a customer’s infrastructure and warn them about issues. The advantage here is you can charge extra for support.
- Tiered Pricing Model: When you utilize this model, you are empowered to offer your customer different packages. Evaluate the costs and resources to provide three basic price points. Make sure you make clear to your prospects that the higher price points affords them better services or your customers will always choose the cheapest option.
- A la Carte Pricing Model: Using this model creates an optimized solution for everyone. You can offer a standard service with hourly blocks for customers who need more specialized solutions.
4. Define Effective Organizational Structures and Processes
Managed services have the same organizational functions as other businesses (Sales, Marketing, Finance, etc.). However, the skills and acumen required for these functions in the MSP model are dramatically different than those in other businesses. This means executing on your organizational structures and processes can be incredibly challenging while you work to build your team while investing in the right skills/resources.
Many MSPs do not yet know the best way to structure their organization in a way that will yield the best performance. While there are many ways to perfect each organizational structure, the stats speak for team specialization and investment. According to the Technology Services Industry Association 2017 Managed Services Benchmark Study:
- Dedicated managed services sales create 8% better revenue growth.
- Operating Income/EBIT when delivered by managed services increases by 12%
- When an MSP utilizes dedicated and specialized client management, their contract renewal rate can increase by 14%
While many of these strategies have worked for countless MSPs, remember that it doesn’t necessarily mean that they will work for you. One size never fits all, so make sure you remain flexible and ready to adapt to any situation. Doing so will in turn make you more competitive in the long run.
Always Keep working to fine-tune excellence in customer support, your strategy, your pricing, and organizational structures.