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More Evidence Recurring Revenue Drives MSP, VAR Profits

Managed services are driving growth and profitability in the channel more so than other products and services, according to new research from the The 2112 Group for Intronis MSP Solutions by Barracuda.

Nearly two-thirds (64 percent) of channel partners surveyed for the first State of North America Managed Services study said recurring revenue from managed services was the top contributor to their growth in 2016. Only professional services were also cited by a majority of channel partners (58 percent) as a growth driver. Thirty-two percent cited software as a growth driver, 27 percent named hardware, and just 15 percent said cloud computing.

“Recurring revenue is the catalyst for market relevance, business viability and growth,” said the report. “Companies that don’t have solid recurring revenue models will find themselves at a competitive disadvantage, playing catch-up with everyone else - at best.”

The study also found that the average channel partner earns up to 30 percent of its revenue from recurring revenue. Only 6 percent of respondents reported no managed services revenue.

Companies that identified primarily as managed service providers (MSPs), rather than value-added resellers (VARs), consultants or professional services organizations, reported higher earnings from recurring revenue. The average MSP earns between 21 and 30 percent of its profits from managed services, compared to just 10 percent for VARs and less than 20 percent for solution providers and system integrators, according to the survey.

Key Findings

Network security topped the list of managed services, offered by 53 percent of the companies surveyed, followed by cloud-based software (SaaS) at 47 percent, endpoint security, on-premises servers, cloud-based infrastructure (IaaS), and network monitoring and management. Only about one-third of companies surveyed offered mobile device management.

The least popular services across the board were hosted and managed e-mail (20 percent), managed VoIP and telephony (16 percent) and file synchronization (6 percent).

Other key findings included:

  • The average MSP is adding 9.8 customers per month.
  • Fifty-nine percent of channel partners say managed services prices are increasing, and 55 percent say managed services margins are increasing.
  • The average solution provider has 129 active accounts, but companies that identify as MSPs have twice as many active accounts as any other channel business model.
  • The average channel company loses about two accounts per month.

Security Services

The standout service sought by customers is security, according to the report, and that trend is being driven by increasing security threats, the risk of data compromises, and a shortage of security talent.

Most customers seek professional security support and management out of fear of being breached, survey respondents reported, yet more than one-third of customers approach them only after an incident has already occurred.

Only 15 percent of the surveyed channel companies offer some form of security service today. However, 62 percent are either planning to add security services or looking into expanding those services within the next 12 months. Less than 25 percent have no plans to enter the security services segment.

The report identified opportunities for MSPs to boost revenue by offering backup and data recovery services. While both are in high demand, only 29 percent of companies surveyed offered backup and only 30 percent offered data recovery.