Guest Column | February 14, 2014

4 Steps to Building a Profitable Services Business

By Justin Crotty, Senior Vice President and General Manager, NetEnrich

I don’t know of any IT solutions provider that has entered the services business to lose money. Yet for some, building a profitable IT services business hasn’t come easy.

As a sales executive, I’ve spent a lot of time with VARs and MSPs in the trenches, talking about the challenges they face, and what they need to build a successful and profitable, services business. During these conversations, I’ve learned that one of the top obstacles many solutions providers face is this: failure to account for hidden costs associated with their services businesses, such as the extra time they spend during the onboarding process to ensure customer satisfaction.

Other road blocks include poor pricing strategies that don’t take into account “value,” overlooking recurring revenue opportunities such as managed security, and simply not leaving room to bill for “scope creep.”  These misses result in solutions providers not being paid for the true business value that their services provide and in other cases simply leaving money on the table.

So, how can VARs and MSPs overcome these obstacles to profitability? First of all, they must realize that they cannot approach the sale — or the support of their services business — the same way that they would the products or solutions they offer. Other best practices include:

  1. Don’t give away the store during the onboarding process. As most VARs and MSPs can attest to, there is much work required upfront during the onboarding process to optimize and tune services for optimal performance. These activities are both critical and necessary to ensuring customer satisfaction, but they are also ones for which VARs and MSPs should receive payment. Many IT solutions providers will make the mistake of providing this service at a discounted rate, or even for free. Doing this not only sets bad precedent with the customer, but also puts undue strain on staff members and partners, when they have to deliver services at a loss that may never be recouped.
  2. Price on value, not cost. VARs and MSPs should never set pricing based on how much it costs to deliver their services. Pricing should always take into consideration the benefits received by the customer. For example, it must be articulated that by increasing the cost of the service they are providing, the customer will benefit from a quantifiable savings in time or money that offsets the price increase over the long term.
  3. Don’t discount services. At the same time you are articulating to customers how increasing the cost of a service can provide more value, VARs and MSPs should also provide them with options that are offered at a lower cost, without discounting. It is very important to clearly state what the customer will have to give up in order to achieve a lower price point.
  4. Avoid “scope creep.” Customers will often ask the VAR or MSP to take on small projects that are related to the services they are providing. Furthermore, they may even expect these services to be provided to them free of charge. These “side projects” can add up in terms of time and cost, straining resources and creating resentment toward the client by your staff, and your partners. As such, it is important to clearly set expectations during the sales cycle so that the customer understands what they are, and are not, entitled to —  based on the price they are paying for the services delivered.   

When VARs and MSPs understand the value of the services they provide, price their services according to value, and communicate that value to their customers, a successful and profitable IT services business is will within their reach.

Justin Crotty serves as senior vice president and general manager for NetEnrich Inc. He’s responsible for driving growth and scale for NetEnrich and its partners and customers. Prior to joining NetEnrich, Crotty conceived and launched the services division at Ingram Micro, where his team built and grew the first and most innovative managed and cloud services business in IT distribution. Widely recognized as an IT channel champion, Crotty has held management positions in IT sales and marketing, and began his career as an IT network engineer with IBM.