Two Ways MSPs Can Drive Growth in 2021

Eric Torres, head of channel development, Datto
Author: Eric Torres, director of channel development, Datto

According to a Canalys 2020-2023 Market Forecast, overall SMB spending on managed services is growing at 15% per year. It’s no surprise then, that most MSPs are growing. But how do certain MSPs outpace the market? In Datto’s annual Global State of the MSP Report we were able to, for the first time, identify traits that set high-growth MSPs apart from their peers. Backed by more than 800,000 data points from 1,800 MSPs, we identified two consistent drivers of MSP growth: generating a higher portion of total revenue from managed services, and setting specific revenue and growth goals. Combined, these two activities enable MSPs to roughly double their rate of growth compared to the baseline.

Generating a Higher Portion of Revenue from Managed Services

For every 10% increase in the proportion of revenue from managed services, MSPs’ annual growth rates increase by 0.25 to 0.75 points. So, increasing the percentage of your managed services revenue stream from 20% to 70% improves annual growth by 1-4 points. Compounded over time that’s significant, and has a multiplier effect on business valuation.

A higher portion of revenue from managed services also helps MSPs improve their business resiliency by maintaining steady cash flow and revenue during economic downturns. The bottom line: while project work and one-time hardware sales may be tempting, there’s no better way to grow and strengthen an IT practice than by shifting as much business as possible to the managed services model.

Setting Specific Growth Goals

Not all MSPs are looking to grow; in fact, nearly a third (pre-COVID-19) responded to our survey stating that they intended to simply maintain the size of their business for lifestyle reasons. However, being intentional matters: MSPs who set specific growth goals see about 2 points of additional annual growth compared to MSPs who don’t.

We also identified a few variables outside MSPs’ control that are correlated with growth—or decline. They include:

  • Size of the business: Larger MSPs, measured by both employee and client count, are generally growing faster than smaller MSPs.
  • Years in business: On the flip side, the number of years in business is negatively correlated with growth, meaning small, upstart MSPs are generally growing faster than older MSPs. However, the number of clients and employees offsets this number, so larger MSPs that have been growing consistently do not see a similar drag.
  • Geography: Individual MSPs based in the Americas are growing fastest, followed by Europe, and finally, APAC. We expect APAC MSPs to see faster growth once the managed services model becomes more commonplace there.

This is not to say new service offerings or sales and marketing investments don’t matter: there is a baseline of investment MSPs need to simply compete and grow at the overall rate of the market; however, accelerating any one of investments alone will not necessarily have a material impact on an MSPs growth rate over and above their peers. Head over to our website and download Datto’s Global State of the MSP Report to learn more.

Author Eric Torres is director of channel development, Datto. Read more guest blogs from Datto here.