Magazine Article | July 18, 2013

Secrets Of Managed Services Veterans

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By Mike Monocello, editor-in-chief, Business Solutions magazine
Follow Me On Twitter @monocello

I’ve been pretty vocal lately about transitioning your business to a recurring revenue model. In giving so much attention to this topic, my IQ on the business model increases on a daily basis. I’ve been trying to get everything down in my blog, but sometimes I look back and discover that I missed sharing some lessons or find that what I thought were small lessons were actually fairly important.

Following are a few observations that are fairly important concerning the as-a-Service business model, particularly for VARs who’ve not yet made the transition or are just getting started.

Ways To Ease Managed Services Cash-Flow Challenges
By far, the most common objection I hear has to do with the financial strain a company can feel when migrating away from the lump sums associated with the old break-fix model. Here are a few pointers concerning this transition that might cushion the cash-flow blow:

  • Take it as slow as you need to — The goal is to increase the amount of recurring revenue you bank each month. Maybe you start by trying to convert one customer per month or a certain amount of hardware. You should be able to determine how much hardware/software/services you can afford to convert on a monthly basis without putting you in a bad cash position.
  • Build a little cushion into your managed services billing — Some MSPs advise charging a setup fee and charging for the first month in advance. This can help soften the blow and close the gap between break-fix income and the MSP model.
  • Seek better payment terms with vendors/distributors — You won’t know unless you ask. Perhaps you can get one additional month out of your vendors, which could add even more cushion to the potential financial strain. Combine this with bullet #2, and you might be able to accumulate a few months’ worth of revenue before you even have to pay your vendors.

When It’s Time To Fire A Customer
Some experts advise you to periodically (six months is a good rule of thumb) review how much effort you’re putting into each of your customers. Doing so will enable you to uncover some interesting things. For instance, you might uncover repeat issues that indicate a more significant problem. You might also learn that your employees aren’t as efficient as they could be. With either example, you could find that you’re not coming out on the profitable end with a customer.

In such instances, depending on the cause, it might be necessary to increase your rates or drop a customer. Of course, no one wants to lose out on potential revenue, but if you aren’t making money off the customer, something needs to change.

Identifying unprofitable customers, nagging issues, and less-than-efficient employees can be greatly aided by using a PSA (professional services automation) tool. Such applications do much to give you a 360-degree look at your entire book of managed services. Without the transparency that a PSA affords, you might be giving away your services and not even know it.

Just Guessing: Sales, Marketing Will Hold You Back Most
I could be way off concerning your company, but many of the VARs I’ve interviewed over the years have admitted that marketing is one of their weak areas. That could be a problem when selling recurring revenue services. Established MSPs, experts in their field, have talked about the necessity of conveying one’s value proposition during the sales process versus simply talking about technology or the skills they possess.

In many technology segments, selling on specs used to be the way to go. Indeed, many a salesperson has made a great living selling this way. Such salespeople might find it difficult to sell services.

You’re not selling a piece of hardware. You’re selling a solution to a problem, and part of that solution is a subscription for whatever you’re selling (hardware, software, services) that eases up-front cash outlays by your customer and gives them peace of mind that as long as they’re paying they’ll have their problems solved.

If you believe sales and marketing could hold you back, there are organizations like CompTIA, the ASCII Group, and HTG Group that offer great education. Also, RMM (remote monitoring and management) and PSA vendors in the traditional managed services space have ridiculous amounts of education to help their partners.

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