Changing your business model from break-fix to managed services most likely includes potentially turbulent changes to your cash flow. At Business Solutions magazine’s Channel Transitions Conference October 7 in Philadelphia, a VAR/MSP panel discussed funding the transition to the new model and setting the right prices to establish a sufficient revenue stream.
Todd Schorle, president of TS TECH, who is experienced at establishing IT and MSP processes, said part of his strategy was to stockpile enough capital to cover three months of expenses. During the first year of the transition, it was necessary for TS TECH to draw upon those funds for personnel and office expenses. He said another key to making the transition was finding the right financing company for hardware purchases.
Bruce Nelson, president of Vertical Solutions, a break-fix VAR-turned-MSP, said his company used a line of credit during the transition. Nelson added, however, by making the transition slowly, you could avoid having to borrow money.
Steve Rutkovitz, CEO of Choice Technologies, agreed: “While cash flow might be important, there could be something even more important. Knowledge and focus within the company is the real shift. We started with one contract at a time. Now we are 60 to 70 percent managed services.”
Rutkovitz said his company has partners that offer pay-as-you-go plans. He said to ask vendors what your options are. “Most will go month to month.”
Nelson and Rutkovitz both commented that they made changes to more service-friendly partners, in some cases dropping long-standing vendor partners in favor of services-minded ones. Schorle, however, said he didn’t change vendors — he didn’t want to deviate from the standard once he had established it. “We figured out how to make it work.”
Setting prices for new services can also be a challenge. Rutkovitz said starting out by pricing too low necessitates going back to the client to have “uncomfortable conversations” to correct it. “You must know your labor numbers to ensure you’re charging enough to be profitable,” he said.
Schorle agreed, adding his company’s pricing has evolved to reflect all risk factors.
Nelson said Vertical Solutions originally charged a price per device, but now is pricing per user. He said, “Pricing is about supporting people and getting your job done efficiently.”
Channel Transitions is sponsored by: AVG Managed Workplace, Mercury, OKI Data Americas, GFI MAX, ModernOffice Suite, and Harbortouch with industry association partners The ASCII Group, CompTIA, and the Retail Solutions Providers Association (RSPA).