Q: Most of my customers are on a managed service contract, but I’m having trouble converting the remaining break-fix customers. To help our business be more efficient and profitable, we want to shift our focus to only providing managed services. How can I transition the rest of my break-fix customers to managed services contracts?
Converting customers to a managed service contract can have multiple benefits, including a predictable monthly income. And, in a recent study conducted by Intronis MSP Solutions by Barracuda and The 2112 Group, 64 percent of channel partners said that recurring revenue services are their best growth driver. While break-fix or project-based work is can add additional revenue to your month, focusing on managed services helps you proactively maintain safe and functioning IT environments for your customers instead of spending man-hours reactively putting out data loss fires. This will save both you and your customers time, money, and headaches in the long run.
Prospects and clients might be reluctant to commit to a managed services contract because of the monthly cost commitment and lingering uncertainty about whether managed services are necessary for their business. That’s why we talked with Randy Thay, one of the regional account directors at Intronis MSP Solutions by Barracuda, to discuss how you can sell managed services to your break-fix customers. Here’s Randy’s checklist for getting started.
How to transition to managed services
1. Assess your business plan and service offerings
As a managed service provider trying to transition your last remaining project-based customers, you should take a closer look at your business model and make sure you have an option that addresses the needs of these customers. Every customer is different, so ensuring you have a plan that fits the needs of this type of customer will make your job—and the transition to managed services—easier.
To find out what they’re looking for, analyze your remaining break-fix accounts and look for common reasons they might be holding back from making the transition. Is there something missing from your current offering? Once you’ve determined the underlining reason, create a package that satisfies those specific needs. You might need to create an additional, ground-level package with lower margins to get them to consider the change. But, once the customer gets comfortable using managed services, you can work on moving them up to a more robust offering.
If you’re just getting started:Make sure you understand the impact of this transition and how to make it work for your business. To help you do this, write out a business plan. This is a big change, and you need to make sure you’re setting yourself up for success.
Study the numbers to determine what the markup should be on each service package. You’ll need to consider the total number of customers, the average cost of each service package, and the expected monthly revenue from each customer. Adding this all up will help you figure out what percentage your margins need to be to make your business profitable.
Then, carefully choose which accounts to approach about managed services. Decide which current customers would be a good fit, such as larger businesses that have more employees and traffic on their networks or clients in a vertical that has strict compliance regulations. Once you get the hang of the managed service model, you can leverage more clients and also start selling your services to new prospects.
2. Prepare your argument
Customers resist the transition to managed services for a variety of reasons, and you need to be prepared to respond appropriately. One way to prepare is by creating and using sales collateral to help you make your point more effectively.
First, think about the arguments your sales team is facing. Based on these arguments, create an email or a document you can send prospects after the initial conversation that outlines the benefits of moving to a managed service contract. Prepare your team to meet common objections you’ve heard before you have them pick up the phone and start the conversation. This helps them prepare for objections they may encounter—without being completely thrown off guard.
Another approach that can help your team is to have a list of all your services and a cost savings report that shows how much SMBs will save over time with managed services. When a prospect brings up cost, ask them to consider the total cost of a recent repair or emergency service, including the hourly fee for the technician, the cost of the new hardware installed, and all other related repair costs. Comparing this to your report will show them the value you can offer them by transitioning them to a managed services contract.
If you’re just getting started:You may also run into customers who are hesitant to move to a managed services contract. To get ready to meet their objections, predict the questions that a small business customer will ask and think through your answers ahead of time. I recommend starting off having a conversation with one client, asking them about what their objections are, and using that feedback to prepare for future conversations.
3. Educate clients
Educating customers on the limitations of a break-fix relationship will help you close more managed services business. Remind customers that with break-fix, there’s no guarantee that their issue will be resolved as quickly as they’d like. In a managed service contract, Service Level Agreements (SLAs) require you to address any problems within a certain agreed-upon time frame. Having this guarantee in writing reassures customers that there will always be someone on your team ready to assist them.
If you’re just getting started: Build your case by emphasizing the other benefits of managed services. Explain to your customers that under a break-fix contract, they’re responsible for detecting issues, and by then it might require a more serious—and more expensive—fix. If they purchase managed services with cloud backup and recovery included, they’ll know that their data is constantly being backed up. If they ever experience a server crash, for example, they’ll know it only takes a quick phone call to you to get their business back up and running.
Whether you’re just starting to sell managed services or transitioning the last of your break-fix customers, use Randy’s tips to close more business and bring in more recurring revenue. After you’ve finished converting your remaining customers, focus your sales efforts on winning new managed services business. With proactive management, you’ll be able to make your business more productive and lucrative. Not to mention, you’ll make your clients happy by saving them time, money—and headaches.
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.
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