Faced with increasing commoditization of their core services, fierce price competition and razor-thin margins, more and more telecom service providers and value-added resellers (VARs) are choosing to make the transition to the managed services business.
Becoming a managed service provider (MSP) offers an immediate path to a wide range of higher-value, higher-margin services that naturally complement the services already provided by VARs. The managed services model also provides a proven strategy for diversifying a VAR’s core value proposition and service offerings – making it possible to generate new sources of recurring revenue and increase the overall value they can deliver to both new and existing customers.
This white paper provides several important insights into how you can make a successful transition to MSP. It looks specifically at the reasons why becoming an MSP makes sense in today’s IT environment, the four essential elements required to become an MSP, and the proven business transformation tools offered by N-able Technologies to help you build and grow your managed services business.
Becoming an MSP involves both a pre-audit assessment and an on-site audit. Depending on the partner’s business, the process can take more than 300+ hours of effort, requiring expertise from across the industry. MSPs complete a rigorous audit by an independent third party. Furthermore, to retain the badge, these partners need to continue to meet pre-requisites annually and complete a progress audit every year. As the cloud evolves, so will the expectations of these MSPs. MSP framework is built so that you can trust that the MSPs who’ve earned the badge are continuously working to remain true MSPs.
The industry has taken a leap of faith from basic data centre co-location services to ubiquitous cloud services. The move to hosted and hybrid solutions has created a tremendous opportunity for service providers on the cloud platform to various services. Subsequently, in the new enterprise technology space, falling behind often leads to business failure. In fact, with constant advancement in cloud computing, it has become so easy to fall back.
Increased complexity without proper management also gives major headaches to IT teams; which can expose infrastructure leading to security threats. For companies, MSPs (Managed Service Provider) handle all these issues and help organizations to implement state-of-the-art technology.
Why do you need to be certified?
To be clear, only cloud vendors (Amazon Web Service, Microsoft Azure, and Google Cloud Platform, etc.) can certify MSPs and acknowledge them as partners. The certification program provides a win-win situation for cloud vendors and MSPs.
MSPs get technical training and business advantages due to association with cloud vendors. On the other hand, vendors can offer services and solutions to the customers via MSPs. Cloud Vendors also promote their partnered MSPs to give them visibility and provide exposure to new opportunities and channels with the help of their marketing team and globally recognized brand.
Such certifications are provided to Consulting Partners with expertise in cloud infrastructure and application migration who can deliver value to customers by offering proactive monitoring, automation, and management of their customer’s environment.
There are numerous benefits that MSPs can get after being certified, but the significant ones are:
Technical training and Sales support: Vendor will provide technical training of their cloud ecosystem through online courses and in-person sessions. They also give sales supporting documents such as white papers, sales scripts, competitor comparisons, and presentations for their preparation.
Differentiation: Cloud Vendor provide badges to their partners or MSPs, that MSPs can showcase their badge to the vendor’s customers, and the vendor also prioritize them in their referral system.
Marketing Assets: Cloud Vendor generally offers a range of marketing materials, tools, and resources that a Certified MSP can use for their marketing or launch new campaigns.
You’re considering adding Managed Services to your existing offering, capitalizing on managed recurring revenue in a market that plays well with your existing core competencies. Before you jump into Managed Services, make sure you have these elements lined up:
Who will be your audience?
Are you planning to offer Managed Services to your existing base or are you going after a brand new market? If you’re going after your current audience, will Managed Services cannibalize or complement your current offering? If you’re going after a brand new market, how will their buying behaviours differ from what you’re used to? Your salespeople are likely going to have to make a major shift in the process when selling recurring services over projects. Will an additional shift in the audience be too much for them to be successful?
How to know your market?
A good way to decide which services you should include in your MSP model is to know your market.
As we’ve already suggested, as an existing IT support company (running a break/fix model) looking to make a move to MSP, you will need to start by considering your current client base. By looking at the areas where you are making the most money, you can begin to understand which services could be worth continuing with as you make your transition. Similarly, try assessing where the majority of your break/fix hours are spent—could these clients be ideal candidates to trial your new MSP approach? Consider asking your existing clients how they would feel about having a fixed price IT service contract rather than the current unknown break/fix fees per month.
Now it’s time to think about what others are doing within your market area. Look at who your main competitors are and what they are offering to their clients—is their service lacking in areas in which you could excel? Are they offering a service which you are not currently offering but could in the future? Once you fully understand your clients, competitors, and prospective customers, you can begin to build a robust strategy for your MSP.
What to consider in pricing strategy?
Pricing key consideration when building your MSP strategy has to be pricing; as chances are this will be the biggest difference to your service, at least it will be in the eyes of your customers!
Until now, you have most probably been working on a Break/Fix pricing model within which your clients simply pay you an hourly rate to fix any problems with their IT services as and when they occur.
As an MSP, you will need to start billing on a recurring basis, and this is what makes an MSP model much easier to scale—enabling yourself to make predictions based on recurring revenues. However, the way in which you decide to do this is entirely up to you.
Think about whether you should be billing per person? Or is per device more appropriate for the clients in your portfolio? Should you be offering a flat-fee rate? Or do you predict that the extra support required by your clients will be too great to make this a financially viable option? Most importantly, how much will it cost to keep your new service running efficiently? If you don’t know this, you won’t be able to set your prices at a profitable rate.
Speaking of salespeople, it is extremely important that they know exactly what they should be selling and have no room to make things up. We keep our managed service offering very simple, and that’s what we recommend for you, as well. Internally, we call these our platinum and plastic offerings. Platinum incorporates every all-you-can-eat service you can think of, including hardware and parts replacements. Plastic includes everything that you can do remotely, with an hourly charge for on-site work. Forget about the Gold, Silver, Bronze, and Lead models. Just stick with Platinum and Plastic, and you’ll thank yourself in terms of ease of sale and service as you grow.
What will be the process when you become an MSP?
As we said, the recurring sale is very different from a project sale. You can’t go in there, ask a couple of generic questions, and then send over a quote, focused on line items, equipment costs, and hourly estimates. The Managed Services sales process is much more involved, and if you want to be successful about 80% of the time, you can’t skip any steps.
Quotas/Commissions: Salespeople sell what they’re most comfortable with, likely because it brings them the most success and boosts their paychecks. If you want your salespeople to begin selling Managed Services, you need to set clear expectations, including realistic quotas and commission structures, specifically for the Managed Services offering (we don’t recommend simple lump numbers). For example, we quota our fulltime salespeople to generate between $2,000 and $4,000 in net new managed recurring revenue each and every month. Determine what makes the most sense based on expectations for your other services, bearing in mind that you need to reward what you want them to do, not expect them to jump on board the new shiny penny.
What will be your plan for your managed services?
Are you converting existing team members to run this new division, are you bringing a whole new stack of people onboard, or are you planning to shoulder Managed Services yourself until the offering takes off? Regardless of your plan, make sure your layout clear job descriptions, career paths, and standard operating procedures. This will create a foundation for service efficiency, accountability, and profitability.
Why should I give a training program to my team?
In addition to quotas and commissions, make sure that you’re adequately training your salespeople. I’m not just talking about products and technical training, here, as some of our most successful sales reps have come from industries far outside of IT. Instead, you need to train them on the process, shifting their mindset from the project sale to the recurring revenue sale. As you go through training, observe your salespeople. They may be able to hack it in Managed Services, and they may not. It’s easier to recognize this process early, fire them, and bring someone new on, than fight with them for 6-9 months without them making any sales.
You need to make yourself an example before you start implementing the service for others. That means you need to operate your internal environment as if you were your very first Managed Service client down to how your staff inputs tickets, sticking to strict SLAs and measuring the profitability of the “agreement”. Treat your own company as a true testament to your Managed Services offering, working out all the kinks before you go live with anyone else
What are the business tools in managed services?
There are two tools that are critical to your Managed Services success, an RMM (remote monitoring and management) and a PSA (professional services automation). Your RMM will allow you to implement an efficient, automated service offering from the beginning, while your PSA will keep you organized from ticketing, project, and sales tracking perspective. If you have to pick between these two tools to save money out of the gate, pick the RMM and add a PSA as quickly as you can after that.
How to market your managed services?
Far too many people rely on an, “if you build it, they will come” mentality. In all reality, people are not thinking about you as much as you’re thinking about you. You have to tell them what’s going on in order to get them interested. This means making marketing announcements, going out to visit big clients, asking for referrals, updating the website, working with the media, and hosting events. Also, remember, it’s not good enough to do this once or twice. You need to do a major marketing push to get this new division off the ground. People are familiar with your existing brand, and now you need to show them what’s next.
How to deal as a managed service provider?
Give Managed Services a fair shake, but don’t just persevere with the offering forever if it’s not making the strides you thought it would. The major caveat to this, though, a fair shot means following each of the above items to a tee, ensuring that you’re setting yourself up for success. If you’ve done that, and the offering hasn’t grown or become profitable within 9-12 months, it’s time to either pull the plug or make a major change! Set your go or no-go date from the beginning, give clear deadlines to accomplish everything talked about above, and ensure that you’re giving yourself the best shot to succeed at Managed Services.
Spend wisely. In most cases, becoming an MSP means operating a data centre complete with the hardware, software, monitoring, security and personnel resources to make sure it all runs smoothly. These components will take a sizable chunk out of your budget, so be careful that it doesn’t take a big enough piece to ground your flight into transition before it even gets out of the gate.
Offer the right services. Some MSPs try to sell as many services as possible to maximize their profits. That’s fine and dandy as long as you can provide those services effectively. Sacrificing quality for the sake of profits could come back to bite you in the ‘you know what’ when dissatisfied customers start generating negative press and fleeing for the competition.
Step your game up. As an MSP, how you honour your SLAs can either make or break you. You might be putting more weight on your shoulders if you’re making big promises that come with bigger consequences should you fail to live up to them. These promises will only grow more complex as your business evolves to meet the demands of growing IT environments, so you need to make sure those service levels are updated and upheld accordingly.
How to be a good managed service provider?
Look a Future Up in the Clouds
For a VAR, becoming a managed service provider is akin to breaking into the big leagues. But while there is much to be gained on that next level, research suggests that a good portion of the reseller segment may be taking a wait and see approach to scaling the ladder. According to a study by CompTIA, four out of 10 IT companies are monitoring the impact cloud computing has on the MSP market before deciding to offer managed services. Profit potential aside, there is something to be said about staying in that zone that keeps us most comfortable.
Understand Your Model
modelThe first and most important thing you need to know before becoming an MSP is what exactly your business model will look like.
There needs to be an element of planning as with all businesses. You need to know what services and devices you are actually going to manage for your clients, especially if you are starting from scratch—it can be challenging to manage all devices from day one.
Similarly, if you are already running a break/fix model, you need to know what services if any from your current offering you are going to include in your new approach—you don’t want to risk losing all of your existing clients by making too many drastic changes.
Think about your client base and the services you are currently offering them, and it could be best to begin with a hybrid MSP model—by providing just some services to start off with, perhaps server monitoring and management. That way, you can show your existing clients the benefits of managed services as you make the transition.
Also, consider the current health of your client’s IT system—perhaps some things need to be fixed before you move into a fixed price agreement. Be upfront with your clients about this. If they have been doing the minimum to maintain their systems and then you offer a fixed price model you could see your profit margins tumble. However, it might be worth taking a bit of a hit on the initial setup to secure the client on a recurring revenue stream.
Do You Have the Necessary Resources?
In order to accurately determine how you should price your MSP service, you need to work out exactly how much it will cost to run, including whether or not you have all the appropriate resources in place. Here you need to consider everything from whether you have the right staff members to handle your new services to the tools and equipment you have at your disposal.
If you are a small company or a company of one looking to expand your business you might want to consider taking on some extra staff to help cope with the increase in clients and the services you will be offering them—otherwise you could easily find yourself spread too thin.
Make sure you really think about where you need the extra help before you make your decision to ensure you are making the most of this opportunity. Do you need someone to help with the increase in admin, giving you more time to work with your clients? Or is more time to run your business what you actually need? In which case, hiring more support technicians may be the way to go.
What is the right tools for a managed service provider?
Tools, when you are thinking about making a move to MSP getting the right tool for the job, is vitally important. You need to be able to manage your new contracts efficiently to ensure you maintain your profit margins. There are a number of different remote monitoring and management (RMM) tools on the market to enable you to proactively monitor all of your clients from one place, saving both time and money. Of course, this is an expense you will have to take into account when costing your service. With SolarWinds® RMM and Solarwinds® N-central, you only pay for the services you use, helping you to tailor your offering to your clients in an affordable way.
Remember also that using a robust platform such as SolarWinds® RMM or Solarwinds® N-central will also help you minimize the extra IT support professionals you need to employ by making them work more efficiently and removing the peaks and troughs of the break/fix model. You can find and fix problems on your client’s IT systems before the client even knows about it—and with the built-in monthly reporting, you can show them all the work you’ve been doing to keep their IT systems in check.