As the end of the year is quickly approaching, and I'm reflecting back on the nine trade shows, conferences, and events I've attended, plus the many conversations I've had with managed services providers (MSPs) and VARs, I've been thinking about the most important themes I've picked up this year, and I wanted to share one that I think will resonate with a lot of our readers. There's all kinds of research pointing to the fact that the channel is moving from the traditional break-fix business model to a subscription-based recurring revenue model. The sad reality is, however, that even those who now refer to themselves as MSPs, the majority of their customers (more than 80%, according to N-able's research), have yet to buy-in to this new business model.
I've talked to many VARs that planned to be all-in with managed services, but the lack of customers willing to make that transition with them is causing them to have to figure out a hybrid service model where some customers are on a break-fix program, a small percentage (less than 12%, in most cases) are on a managed services program, and some portion are on a program that fits someone in between.
Since this is such a major pain point for so many MSPs I talk to, I'm going to devote a lot more time in 2013 covering this topic to bring you tips and best practices from managed services providers who've found ways to beat the averages mentioned above and are able to convince their customers that it's better to pay more to allow them to manage their workstations, servers, backups, antivirus, security, patches, and a host of other IT needs. Here's one piece of advice that a couple of sources shared this year that is a good starting point for making this business transformation:
Selling managed services is more akin to selling life insurance than it is to selling a traditional solution with an expected two- to three-year payback period. I think this is an important starting point for one key reason: If you're transitioning your business model without transitioning the way you're selling, you're setting yourself up for failure. Case in point, at an N-able event I attended earlier this year, Gary Pica, founder of managed services mentor company TruMethods stated to those in attendance: "You are not charging enough for your managed services." You could feel the frustration from many attendees, wondering, "HOW can we charge more -- the market isn't willing to pay more?!"
If you're trying to pitch your managed services offering as a way for your customers to have all their servers, applications, and workstations automatically updated, running, and with guaranteed up-time -- and all this is going to cost them just a little bit more than what they paid you previously when something broke, you're devaluing a very important part of managed services.
The MSPs who are making healthy 40%+ profit margins put much more emphasis on the true cost of downtime, asking their customers to think about:
1. How long can your network be down before it becomes financially too painful?
2. If your office was flooded, hit by a tornado or some other natural disaster, how certain are you that your data would be safe and readily available when you needed it?
It's only when you start having these kinds of conversations and can help your customers put a value on their data and the importance of a business continuity plan that you have a chance of winning managed services business and getting paid what you're really worth.