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How to Transition From VAR to MSP, Monthly Recurring Revenue (MRR)

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Author: Neal Bradbury

There is currently a trend among value-added resellers (VARs) to adopt a new business model and become a managed services provider (MSP). In CompTIA’s 5th Annual Trends in Managed Services report, the IT industry trade association states that more than half of all IT solutions providers predict 75 percent of their revenue will come from managed services in the next two years.

Why Transition from a VAR to an MSP?

A major driver toward the managed services model is predictable income. It’s not unusual for VARs to begin a month by adding up expenses and then trying to find enough project work to cover them. Simply put, VARs hope something breaks so they can fix it. MSPs, on the other hand, build a consistent recurring revenue stream from monthly fees for services. MSPs know exactly how much they will bill, when they will bill, and when the money will come in.

Another advantage of the managed services model is that MSPs deliver services proactively rather than reactively when something goes wrong. MSPs use remote monitoring and management (RMM) tools to gain visibility into how networks, appliances and devices are working so they can perform maintenance or repairs, often remotely, to correct problems before they lead to failures and downtime. Last, but not least, one added benefit to the managed services model is that end user satisfaction is typically higher than with the break/fix business model.

When MSPs keep their clients’ systems running smoothly, there are fewer truck rolls and lower technician labor costs—it’s more profitable when everything is working. Unlike VARs, MSPs hope nothing ever breaks.

Computing Technologies Inc., an Intronis partner based in Sterling Heights, Mich. is currently transitioning from the VAR to MSP. For Corey DeGrandChamp, Owner and President, the transition was driven by a desire to modernize the firm’s business model. “When I bought Computing Technologies in April 2014, we were primarily operating as a VAR providing break/fix services,” he says. “A potential client called one day looking for an MSP and I had an ‘ah-ha’ moment when realized that we didn’t even mention the term MSP on our website. By transitioning from a VAR to an MSP, we will be able to provide our customers with predictable monthly billing for the services we offer, it will also be easier for us to forecast and track our income and sales.”

First Steps to Becoming an MSP

To begin the transition into managed services, many VARs have been successful by starting off slowly by offering just one managed service. Common “gateway” services are RMM, antivirus, antispam, backup and disaster recovery (BDR), security, and Microsoft Office 365. Once you are successfully providing those services, offer more.

Additionally, you’ll want to set up Service Level Agreements (SLAs) with your clients. An SLA is used to clearly set expectations in terms of what you will be providing your client with, how many hours you will be spending servicing them each month, and what they will be paying for your services. Having a mutually agreed upon SLA with your clients can help prevent any confusion in the future over what it is you are providing your clients, and help to ensure you are running your MSP business as smoothly as possible.

It’s also important to provide quarterly or monthly reports, showing the maintenance you performed and the problems your services prevented for your customers. For example, if your RMM detected an issue with a hard drive, it’s important to point out that you replaced it and the problems your service prevented. These reports can lay the groundwork for stronger, stickier client relationships based on the value you provide your customers.

As you begin your managed services transition, you may want to consider starting with larger, well-established clients. With RMM, you will save trips, especially if the client has multiple locations, and the RMM could quickly pay for itself. The data you collect could also serve as a compelling case study to refer to when speaking with other managed services prospects.

Whichever way you choose to add managed services to your line card, be sure you take the time to set business goals that align with your value proposition and plan how you will execute objectives to reach those goals.      

3 Tips to Optimize Your MSP Success

As you plan your transition to managed services, pay special attention to these areas to avoid some common pitfalls:

  • Automation Tools. Before you select an RMM or professional services automation tool (PSA), take the time to vet and demo your options. These tools are critical to your ability to monitor and manage your clients and can help you effectively manage your staff and business. Don’t compromise in this area — make the best choice for your business.
  • MSPs don’t sell a box or a device, so they need to account for the time spent with each client to ensure profitability. Use a PSA to track labor hours and manage tickets. The reports from your PSA will help you evaluate whether you are correctly pricing the services and packages you offer clients and whether some clients are not profitable to work with.
  • Price vs. Value. There could be objections from your customers or prospects about cost, but don’t be tempted to lower your prices to get the contract. Instead, show the value your services will provide them. Reviewing their IT bills from the past few years may be helpful to show how much they paid for IT services when problems occurred, compared to how your services will keep things running smoothly for a flat monthly fee.

In addition to the tips outlined earlier, there are several resources that can ease your transition to managed services, such as the Intronis blog (blog.intronis.com), which includes insights and resources from companies that work with MSPs or have made the transition themselves. There are also industry organizations (e.g., CompTIA) and peer groups (e.g., HTG Peer Groups) that offer lots of assistance. Leverage these resources to quickly navigate the challenges that come with this important business change. The sooner you make the transition, the sooner you can start earning a predictable — and more profitable — monthly revenue stream.

Neal Bradbury is senior director of business development for Intronis MSP Solutions by Barracuda. Read more Intronis MSP Solutions blogs here.

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