7 Steps For MSPs To Achieve Recurring Revenue

By Jay McCall, Business Solutions magazine.

Four industry experts share tips and warnings to help you expand your MSP (managed services provider) practice.

While traveling to a recent IT tradeshow, a well-established Canadian MSP described to me how helping his clients reduce their number of overall servers through virtualization actually put his business in a difficult predicament because there were fewer things to manage. He was heading to the show to learn how to sell more services and to find out what kinds of services could be automated so he wouldn’t have to add more employees every time he added a new service. “MSPs also need to consider the fact that if they can’t manage other vendors and solutions providers working in their accounts, those other providers could slip in and erode their position in the account,” warns Leonard DiCostanzo, Sr. VP,community and business development, Autotask. I asked four industry experts to share their advice for MSPs facing similar predicaments. Below are seven tips you can use to guide you in expanding your services business.

Step 1: Know Your Core Service Offering
It might sound a bit overly simplistic, but multiple experts surveyed recognized that when you’re looking to expand your managed services practice, you don’t want to take on too much, and there’s no one right answer for every MSP regarding what you should add to your practice. So, the starting point is to take inventory of what it is that you’re already really good at and consider adding one or two services that would complement an area where you already have expertise. (Check out “Avoid A Storage Market Catastrophe” on page 44 of this issue to see how software reseller Productive Corp. assessed its core skill set and turned around its struggling business.)

Step 2: Confirm Your Customers’ IT Service Needs
When you consider adding services that complement your current business offerings, you’ll narrow the field down quite a bit, but to get more specific, you’ll need to consider your existing customer base. “Specifically, you need to consider how a new service would benefit your customer, and, if so, does it address a need your customers have right now?” says Frank Gurnee, VP of channel at Equus Computer Systems. Gary Pica, CEO of TruMethods, also advises, “Imagine your best customer asking you, ‘What’s the best way you could take care of our technology?’ What tools, processes, and services would you put into place? That’s what you should be offering each customer.”

Step 3: Consider The Hidden Costs Of A New Managed Service
This next step is particularly crucial: How do you go about adding a new managed service? Do you partner with another service provider or with a vendor, or do you take on this new service by yourself? “It’s always difficult to gauge the potential for a new direct vendor relationship,” Gurnee says. “Many vendors require minimum quantities or investments as well as term commitments. These requirements can creep up on MSPs and quickly skyrocket the costs associated with providing the chosen services.” Make sure you know all these kinds of details before signing up to resell a new service.

Another thing to be aware of is your own internal labor cost. You need to have a realistic understanding as to whether a new service is going to require hiring more employees, and you need to have an idea of how much you’ll need to invest in training costs. “Considering how difficult it is for many resellers to hire the right talent, we expect to see outsourced NOC [network operation center] and help desk services growing in the immediate future,” says Rob Rae, director of partner development and operations at Level Platforms.

Step 4: Get Feedback From An MSP Association, Peer Group
Having access to the right tools and resources is critical to your growth. Within the space, there are a few peer groups and associations that can help you stay up to date with trends in your industry and even help you develop a road map to grow your business. Here’s a quick look at four groups you should be aware of:

ASCII Group (www.ascii.com) — This group of independent IT solutions providers, integrators, and VARs works with resellers of any size and offers assistance in the following areas: cost cutting, resident experts, business building, tools and resources, and providing special pricing and offers on a range of services available only to members.

CompTIA (www.comptia.org) — A nonprofit trade association advancing global interests of IT professionals and companies through education, certification, advocacy, and philanthropy.

HTG Peer Groups (www.htgpeergroups.com) — This group helps pair IT company leaders from MSP companies into groups of 6 to 12. The groups meet quarterly in a noncompetitive environment to network and discuss issues specific to each member’s concerns.

TruMethods (www.trumethods.com) — Founded by a former large MSP, this company is focused on coaching and mentoring MSPs on how to package and sell cloud solutions and services.

Step 5: Sell Your New Service To Your Sales Team First
“The biggest hurdle to rolling out a new service is often internal buy in,” says Rae. “People are naturally inclined to resist change, so you need to have a strong internal champion to help you secure buy in at all levels of your organization.” This is particularly common among break-fix service providers that have resisted migrating to the new recurring revenue business model. Those who took a hard stand against change were left operating reactively, and they’re the ones who are struggling today.

Step 6: Follow A Standards-Based Onboarding Process
There are a number of different ways you can go about adding a new service to your business. Rather than spending too much time creating your own best practice, consider using what’s already available. “Look into the ITIL [information technology infrastructure library] best practice framework,” advises Autotask’s DiCostanzo. “Other companies have gone through similar experiences, and you can benefit from their mistakes and successes. The ITIL site includes a variety of complementary information along with “The Best Management Practice” volume, which includes a book titled ITIL Service Transition, which sells on Amazon for about $111.

Step 7: Think Cake, Not Ingredients
Once you add a new service, you need to consider how you’ll present this new offering to your customers. The worst thing you can do, according to TruMethods’ Pica, is to sell your new service separately from your other service offerings. “The best way to think about this is to consider buying milk, eggs, butter, sugar, chocolate icing and a few other ingredients compared with purchasing a chocolate cake. When you look at a cake, you don’t think about the ingredients; rather, you think about the overall experience. It works similarly within the IT realm — your customers don’t want remote backup, they want their data protected.” This is a key concept that separates MSPs that struggle to earn adequate margins from their more successful counterparts.

If you’d like additional insights on successfully selling managed services, check out “4 Tips For Managed Services Success,” which describes how Dempsey Bluevar applied lessons it learned during the recession (e.g. developing a way to validate customer satisfaction). You can read this article on our website by going to www.bsminfo.com/go/4tips.