3 Lies Break-Fix VARs Tell Themselves About Managed Services
By Jay McCall
Despite the growing number of managed services success stories, many VARs are reluctant to make the switch, and here’s why.
If you read Business Solutions magazine, you might get the impression that nearly every IT services provider is selling managed services, experiencing year-over-year double-digit growth, and anyone that’s not doing this is the exception to the rule. A closer look at the IT channel, however, reveals that these success stories and examples are the exception. CompTIA’s Third Annual Trends In Managed Services report found that only 4 in 10 channel firms offer some degree of managed services. Of that 40 percent, only a small percent derive more than half of their annual revenue from managed services contracts.
However, as we’ve shown month after month, those who figure out the secret to selling managed services not only realize healthy double-digit profit margins over a long period, but something equally desirable to many business owners — the ability to spend some time away from the business without worrying about the next “all hands on deck” IT catastrophe.
So, why exactly are so many IT service providers reluctant to sell managed services? Industry experts from master MSP and HaaS (hardware-as-a-Service) provider CharTec, PSA (professional services automation) vendor ConnectWise, and RMM (remote monitoring and management) vendor N-able by SolarWinds offer their perspectives on the three lies VARs tell themselves about managed services.
Lie #1: There Is More Money In Break-Fix
No one wants to invest time and effort into something that results in a pay cut, but that’s exactly how some VARs perceive the “smaller monthly revenue streams” of managed services compared with the “30-day cash flow” they’re accustomed to. “This misconception is often held because the VAR is thinking in terms of the hourly rate charged for project work rather than the longer term benefits of a recurring revenue stream,” says Alex Rogers, founder and president of CharTec. “It’s also important to remember that project work is not guaranteed; however, a managed service deal includes guaranteed monthly revenue for a long duration.”
One way to overcome this objection is to see a side-by-side comparison like the one Business Solutions Chief Editor Mike Monocello shared in his June article “Retail VARs: How Did It Come To This?” In the article Monocello compares a $10,000 traditional software sale to a $10,000 SaaS (Software-as-a-Service) sale. He then highlights the fact that while the traditional sale has the early on edge over the SaaS option, during the third year after the initial sale, the SaaS sale overtakes the traditional sales model, and the gap between the two models widens from there. Rogers says that the only way a VAR can truly embrace this concept is by stepping out of his comfort zone and closing a deal. “Once a VAR gets a taste for annuity revenue, it’s like a shark reacting to blood in the water,” he says.
Lie #2: My Customers Don’t Want Managed Services
Some VARs recognize that managed services can be more lucrative than break-fix revenue, but it requires the “right kind of customers,” which they don’t believe they have. This belief manifests itself in several ways, according to the experts. “Some VARs are fearful about selling to existing customers,” says Mark Sokol, director of marketing at ConnectWise. “A VAR may use the excuse, ‘I have a lot of “legacy” customers who have been with me for years, and I don’t want to hurt their feelings by imposing a new business model on them.’”
In other instances, VARs believe their customers don’t have enough issues on a regular basis to justify the service. “In this case, the VAR misses out on a managed services contract as a result,” says David Weeks, channel strategy manager at N-able by SolarWinds. “Some MSPs might even feel their customers are too small to benefit from managed services, when in fact smaller customers often find the monthly fee arrangements and ongoing support to be ideal for their businesses.”
Another similar objection in this category occurs when a VAR picks up a new client who just got out of a poor managed-services contract and now only wants the pay-as-you-go model. “The only way to get past these hurdles is for the VAR to invest in its business with the proper training, PSA, and RMM tools,” says Rogers. “I always suggest focusing on one client at a time and starting off small with helpdesk, monitoring, security, and backup. As VARs gain experience, they can expand their offerings and advisor roles.”
N-able by SolarWinds’ Weeks also suggests VARs should be careful not to jump to conclusions about managed services too early in the transition process. “If an initial managed services conversation doesn’t go well, this can result in the misperception that customers are not interested,” he says. “It’s critical to follow up with the prospect — and come up with a business game plan — no matter how the initial conversation went.”
Lie #3: It Will Be Too Hard/Expensive To Change My Business Model
This objection is often the result of VARs believing they have to figure everything out by themselves. Some of the typical questions VARs have when they’re considering managed services, according to ConnectWise’s Sokol include:
- How can I price my services competitively and yet remain profitable?
- Do I have the right sales team?
- How do I compensate my salespeople for new deals where the revenue is collected over 36 months? (e.g., Do I pay salespeople up front or do I pay them over the life of the agreement and when I collect the cash?)
- Do I have the right technical staff and management team?
- Do I have a technology platform that will support this strategic shift?
“There are many different sources that can help VARs address these concerns and more without breaking the bank,” says Rogers. I suggest visiting some of the channel events such as IT Nation, Robin Robins Boot Camp, and CharTec Academy, and ta lking to other MSP converts. You can usually score a free ticket to these events if you’re chatting with the right person.”
ConnectWise’ Sokol concurs and adds, “Why do it all on your own when you can learn from others’ mistakes? That’s where ConnectWise, our user groups, and our annual IT Nation event help our partners. Additionally, we partner with peer groups like HTG [Heartland Technology Group] for more intense business coaching. Groups like HTG are terrific for moving beyond informal interactions and getting a team of “coaches” who hold service providers accountable to making the right business moves every month. Once the business owner or management team understands that evolving to the more predictable managed services model is the only way to have a sustainable business, the fears and objections often work themselves out.”