Q: We consider our business to be a VAR (value added reseller), but we also provide break-fix services to small business clients. We’re starting to see a shift in the industry, and we’re considering expanding our offering to include managed IT services. What should I think about before making the transition to a managed service model?
The managed service market is growing rapidly, and with limited technical talent, the demand for IT technicians is at an all-time high. This is driving up salaries, making it hard for SMBs to hold onto their technical staff, which in turn makes them more likely to consider hiring a managed service provider.
According to a recent study conducted by Markets and Markets, the managed service market will be worth $242.45 billion by 2021. This creates a tremendous opportunity in the market, so many small reactive IT service businesses are looking to transition at least part of their business to a managed service model.
This process involves more than simply offering new services to your clients, though. It requires a new mindset that you and your technicians need to adopt. To make the transition successfully, you need to start thinking like a managed service provider. To help you do that, we gathered tips and advice from our recent panel discussion, The Path to Managed Services Success. This webinar featured two partners who are successfully transitioning to a managed service model, and Neal Bradbury the senior director of business development at Intronis MSP Solutions. Here is some of the advice that they shared for other IT providers who are looking to make the transition.
Getting into a managed service mindset
1. Start thinking proactively. This might seem like a no-brainer, but the reality is your techs need to go from the mindset of waiting for something to break—to asking how can we prevent this from breaking in the first place? Essentially, you will be fixing your end-users problems before anything happens. A break-fix service or a VAR can reactively help a customer when something goes wrong, but a managed service business has customers’ backs to proactively protect their data and recover it quickly and easily when needed.
2. Instead of waiting for outdated hardware to break, implement a new solution. When you’re a VAR, you see customers continually try to drag out their refresh cycles because they own the equipment and want to avoid a big capital expense to replace it. This leaves them vulnerable to threats, attacks, and potential data loss. Shifting to the managed service model, you’ll find that you have an easier time helping customers refresh their outdated equipment because they can treat it as an operating expense.
As you transition into managed services, keep in mind that customers don’t own the solution; they pay you a monthly fee to have you manage it for them. Depending on how you package your services, paying for the hardware can be built into your managed service fee, and at the end of the payment terms, the hardware should be replaced. Let’s face it, you don’t want to manage a solution that is outdated and susceptible to vulnerabilities, so it’s in your best interest to make sure that the equipment is up-to-date and refreshed on a recurring level. As a VAR, refreshing hardware and equipment is in the SMB customer’s hands, but as a managed service provider it becomes your responsibility to ensure that customers aren’t running on outdated systems.
3. Keep profitability top of mind. Instead of waiting for the next project or hoping something breaks, managed service providers have a consistent stream of monthly recurring revenue. While you might advertise competitive prices online for break-fix services or hardware, publishing your pricing for your managed services might not be your best bet.
With the managed service model, there are a few different ways you can price out services for SMB clients. You can price base on users or devices, create service bundles, or even customize pricing to fit the client’s needs. Whichever route you decide to go, make sure you articulate the value you provide to your SMBs, and most importantly have your own profitability in mind. Sure there might be an MSP offering the same service for less, but if you’re going to lose money on a customer, it’s not one you want to bring on board. Instead of competing on price, find a way to differentiate your services. Will you have better customer service? More experienced techs? Find out what your differentiator is and then capitalize on it.
Making the switch to managed services doesn’t need to be drastic. In fact, it’s easier to start offering one or two services and then build from there. You don’t need to do everything at once. Start off slow, and as you become more comfortable with those services, add more. Just remember, good things take time, practice, and hard work—and moving into the managed service space isn’t an exception.
Ask an MSP Expert is a weekly advice column answering common questions from MSPs and IT service providers. It covers topics ranging from pricing and selling to marketing and communications—and everything in between.