High Maintenance Clients Push This MSP To Offer Hardware As A Service

When ARRC Technology started offering managed services more than 10 years ago, it ran into a problem many managed services providers (MSPs) still face today: It was servicing a company with outdated technology and found itself on the losing end of a contract guaranteeing a flat monthly fee for support. “As soon as the contract was signed, the floodgates opened,” explains Monique Rogers, director of marketing at ARRC. “We were there seven days a week. We couldn’t budget them on upgrading the infrastructure, and we were losing money with the contract.” Then a technician made a crazy suggestion — just give them the new equipment and be done with it. “It was in our best interest to buy this company the equipment they needed so we could get our technicians back,” says Rogers. That is exactly what ARRC did. “We implemented the new hardware, the network was stable, and that resolved much of our problem,” says Rogers. But it didn’t end there. ARRC realized that if they could just get all their managed services clients on upgraded hardware, the company would win in the long run.

The result was CharTec, a hardware as a service (HaaS) solution that allowed ARRC to only work with clients that have reliable infrastructure. “We provide the hardware, the services, all for one flat fee,” explains Rogers. The plan worked slowly at first. The company’s recurring revenues went from $5,000 a month to $50,000 a month in four years. That figure jumped even higher when the MSP paired its HaaS solution with managed services products to resolve client needs such as remote management, data archiving, and backup. To do that, ARRC leveraged lessons from MSP University, an organization that provides education, training, and consulting services to MSPs and developed strong vendor partnerships. “We married our hardware solution to a full suite of managed services and recreated CharTec in the version it is today,” explains Rogers. The new integrated hardware and services model allowed ARRC to further ramp up recurring revenues — achieving nearly $200,000 a month in less than 18 months. It also allowed the MSP to provide such seamless solutions that it quickly locked in its customers, enjoying a 72% renewal rate at the end of its three-year agreements.

Create Lasting Customer Relationships With HaaS
An example of how the process works can be found by looking at a recently signed client. A real estate agency contacted ARRC after suffering through a bad relationship with another MSP. The agency was battling unreliable backup processes, major network downtime, and slow support, all of which cost them revenue and clients. With the real estate market already tough, this agency needed a solution quickly. In about 60 days, ARRC had the new hardware installed and networked, all the business-critical applications and data rolled onto the new system, and the staff fully trained. To resolve the agency’s needs, ARRC used Zenith Infotech managed services platform and its BDR solution, the Reflexion Total Control email security solution, ServiceDesk USA powered by Synergy, its own CharTec Hardware as a Service, and HP networking components. The new equipment also helped ARRC address challenges such as bandwidth and remote access by the office’s real estate agents, who spend most of their time in the field.

The sale, says Rogers, was as simple as taking the capital expense of upgraded equipment off the table and rolling it into the $1,500 monthly fee charged by ARRC. “Our flat rate and total end-to-end solution gave us a major advantage,” explains Rogers. “That offering allowed us to overcome the typical capital expenditures objections.” Today, that contract has grown to $7,150 per month with the addition of further support and professional services.

That increase showcases another aspect of the success ARRC has seen with its CharTec solution: sticky clients. “Once their three-year term is up, let’s be honest, they aren’t going to hand back the hardware and find another solutions provider,” says Rogers. “They like the new hardware, they have enjoyed a reliable network, and there is no reason to terminate our relationship. They just renew, enjoy the total network refresh that comes with that, and off they go.” Rogers stresses that not only does this solution mean clients don’t have the hassle of monitoring and upgrading their own hardware, they also don’t have to deal with licensing updates or refreshes. For many of them, that is enough of a selling point. But for others, there is the appeal of writing off the contract costs as a service, which is tax deductible for most businesses. There are many benefits for ARRC, especially now that it has struggled through those first lean years when only a limited number of clients could be signed up due to the hardware expenses the MSP had to incur. Today, ARRC enjoys reliable recurring revenue, sticky clients, and a new opportunity. “We have just taken the HaaS solution and rolled it out to other MSPs,” explains Rogers. At SMB Nation Fall 2008, ARRC started the process of selling its solution to other MSPs to use in their own businesses. ARRC manages the hardware part of the solution, which is paired with an MSP’s own managed services offering. Rogers says that provides other businesses similar to ARRC the opportunity to increase revenues in the same way, but without the growing pains.