Magazine Article | April 23, 2013

3 Prerequisites For Managed Services Success

By Jay McCall, Business Solutions magazine

Thinking about selling managed services? Follow these tips, and avoid the most common pitfalls.

Despite the economy still not being in great shape, the predictions for managed services growth look promising. Forrester is projecting managed services to grow globally at an annual rate of nearly 18%. Gartner’s research predicts that 90% of North American companies will use remote infrastructure managed services by 2014. While such statistics look very promising, they’re not a success guarantee for managed services providers. In fact, Marco LaVecchia, director of North American sales for N-able, sums it up best: “Managed services requires a completely different approach to sales and service than break-fix. Don’t ignore the technology — it’s critical, too — but make sure you’re not just focused on reselling technology.” In addition to LaVecchia, I spoke with two other industry experts to get their advice on the three most important things VARs need to know before selling managed services.

Understand The Economics Behind Managed Services
One of the most vital changes VARs have to realize is that selling managed services isn’t merely an addon to their existing business; it’s an entirely different business model. According to Dr. Alistair Forbes, general manager at GFI MAX, “A true managed services arrangement means that the MSP assumes the risk of supporting the customer’s environment and can no longer assume that any work the MSP does will generate revenue directly.” Even though recurring revenue is a more predictable form of income, the costs associated with providing managed services can be less predictable. “A failure to understand this can mean pitching at a price that causes the MSP to service the client at a profit loss or cut corners on service, which eventually causes customers to go away.”

Matt Nachtrab, CEO of LabTech, concurs that this is extremely important for VARs to realize and adds, “The business plan is the first step VARs need to address. A good plan should address client conversations [i.e. the sales plan], the pricing model, SLAs [service level agreements], and the marketing strategy.”

All the experts agreed that one of the biggest culprits for mispriced managed services comes from skipping the network assessment. “Conducting a thorough network health check and agreeing to an initial piece of chargeable work with the customer to bring the network up to a sustainable state will avoid the MSP incurring large costs that will be difficult to recover later,” says Forbes.

Standardize Internal Systems And Processes
Profitability in managed services is all about delivering the highest quality of service at the lowest internal operating cost. “In a break-fix model, the provider can get away with inefficiencies because they are charging the customer for all the work they do, so there is less incentive to make sure that it is being done efficiently,” says Forbes.

An important part of running an efficient managed services practice is selecting the right technology tools. For MSPs, two technology must-haves include RMM (remote monitoring and management) and PSA (professional services automation) software. “RMM helps MSPs look after their clients’ systems, and the PSA helps MSPs look after the management of their work,” says Forbes. Selecting tools that fulfill the MSP’s requirements in these areas with the minimum amount of overhead allows the MSP business to be agile and responsive to both its customers’ needs and its own need to adapt as it grows.

“A quoting solution is another important tool that MSPs should add to their must-have list,” says Nachtrab. Any sales rep who’s ever spent hours putting together a quote for a customer, only to have the customer come back and want to see “two or three more options,” will appreciate the value of this tool.

Develop New Marketing And Sales Skills
Even if you heed the first two tips, but avoid this third one, you’ll seriously limit your managed services success. Before you begin addressing this last one, it assumes you already have buy-in from the key people within your organization. “If your technicians, sales reps, and COO are not on the same page, the chances of running a successful managed services practice decrease dramatically,” warns LaVecchia. The best way to make this happen is to take a phased approach to educating your workforce. “Help your staff to understand the ‘what, why, and how’ of your managed services plan,” advises Nachtrab. “It’s also important to define each person’s new role and responsibility and be committed to building managed services specialists through ongoing education and training.” Some VARs may have the internal resources to train their sales and technical staff on how to sell managed services, but many will need to seek outside help from a vendor/distributor partner or association. The important thing to remember is that this investment is not optional. “The fact is that the largest [and most profitable] MSPs have well-trained salespeople and smaller MSPs don’t,” says LaVecchia. “If you want your business to grow, then invest in sales and marketing. It’s that simple.”

As you attempt to hone your training, it’s important to focus on your customers’ perspective on this new offering and anticipate their potential objections. “There is the risk that customers won’t understand the value of the service that is being delivered — especially if they have been used to seeing their IT provider on-site fixing problems, and over time they see less and less of them as the network availability and performance improves,” says Forbes. This can cause them to question the need for the managed services arrangement, which can lead them to want to reduce their monthly payment or cancel the managed services contract altogether. “Demonstrating the ongoing value of your managed services through reporting and good account management is vitally important to maintaining and reinforcing in your customers’ minds that this new reality is actually a reflection of the fact that the managed service is delivering what it was put in place to do,” says Forbes.