For as much positive press as the recurring revenue, as-a-service sales model has gotten lately, it may come as an initial shock that analyst group Ovum released a report recently stating that the "IT services market endured a dismal end to 2012," and "The TCV [total contract value] of deals announced in the fourth quarter of 2012 was $20.8 billion, down 34% from the same period the previous year."
I don't know about you, but I find these numbers concerning. At a time when IT spending in the SMB market is approaching the $1 trillion mark, this same market sector is shying away from signing up for managed services.
I think that RMM vendor N-able's research gives us insight into what's really going on here. After surveying 1,800 MSPs, the vendor learned that the average MSP has 202 SMB customers. Approximately 82% (158) of those customers are on a reactive/break-fix plan, 32 customers (12%) are on a proactive program with remote monitoring, but the monthly service charges are unpredictable. Only 12 customers (6%) are on a fixed-fee managed services program.
If you compare N-able's research with Ovum's research, it sheds light on an obvious topic within managed services: Even though this business model makes sense for MSPs and their end customers, it's way more difficult to get end customers to agree to switch over to this business model.
I've talked to a lot of industry experts on this topic, and I feel that Gary Pica, CEO and founder of TruMethods, an MSP mentoring company, sums it up best when he describes the typical response received when an IT solutions provider tries to convince a customer to switch over to a managed services program: "Why should we spend more money with you than we already are when everything is working fine?"
Pica offers a 4-step solution to this objection, which I've summarized below and you can read the full version here:
1. Paint a picture
2. Attach a value to your picture
3. Use cost to your advantage
4. Don't overemphasize technology