VAR To MSP: Dollar$ To Donut$ The Best Decision

By Matt Kanaskie, Marco

Transitioning from being a VAR to an MSP is a natural evolution that can benefit your business long-term. There are numerous financial incentives that can motivate a VAR to become an MSP. As a member of the leadership team at Marco Technologies, I’ve learned first-hand how making this change has improved our business in a variety of ways.

The Financial Benefits

As I alluded to before, the benefits here are largely financial. And, if you’re doing your due diligence by having a business succession plan, you’ll note that the valuation of a VAR business is much less than that of an MSP. Another reason you should consider this move is that it is a much more reliable stream of revenue compared to a VAR stream, which has numerous peaks and valleys; you will have profitability you can count on year after year as an MSP.

You may be thinking to yourself, this sounds great, but, exactly how does that work? Don’t worry, I’m going to lay it all out for you now. For starters, you’ll be moving your clients from a CapEx (capital expenditure) model to an OpEx (operational expense) model; the benefits here include having more control over cash flow priorities and several tax benefits, along with term commitments for services.

The move to MSP also will allow you to convert your customers to a consumption-based business model, allowing more stability as their monthly expenses remain consistent; unlike your VAR business, MSP customers don’t typically have unexpected bills or expenses that they haven’t budgeted for. As you transition your customers to the MSP subscription-based model, you also move yourself away from having to track and charge for hours and materials, saving yourself and your clients innumerable time, headaches, and disputes creating increased customer satisfaction.

IT Infrastructure Considerations

Typically, as a VAR, the customer drives the transaction; if you don’t have something that the customer is asking for, you go out and source it for them. This leads to virtually anything and everything being on the table as far as technology goes. It also means that sometimes you are offering your own service; however, other times you must outsource service, lowering your margin. As an MSP, you stick to a standardized infrastructure stack, where you are vetting and assessing products to ensure that everything you are implementing for a customer is sustainable, optimized and manageable with your skillset of technical expertise.

When it comes to infrastructure considerations, I like to use the example of a custom hot rod shop (VAR) vs. a mass production assembly line automotive manufacturer (MSP). In a VAR environment, your customers receive a one-off customized vehicle –often one and done—and thereafter, you aren’t maintaining their customized setups. In an MSP model, your customers receive a repeatable, standardized vehicle that can be maintained for years to come…. This shift yields efficiency and scale.

Contract And Pricing Considerations

There are generally three different pricing strategies for an MSP; your priority before transitioning to this model will be to determine which one works best for you, and this will be your go-to-market strategy. The three pricing models I have seen are à la carte, tiers and all you can eat buffet.

• À la carte: pricing model based on a “per device” charge; this is frequently the most inexpensive.
• Tiers: Different offerings based on different levels of service (e.g. silver, gold, platinum).
• Buffet: One price covers everything (typically “per user or lump sum”); most expensive

When determining which method will work for you, some questions you should ask yourself include:

• Tech bandwidth and capabilities; will your staff need more training, and/or will you need more staff? Do they have customer service experience?
• What will the length of your contract be? Industry standard for a subscription-based service is typically 36-months. Or do you want to offer multiple options for shorter or longer terms?
• What will your contract look like? What terms & conditions will you put in place to protect yourself and your customer? Do you have the appropriate RMM and Ticketing systems to manage the contract entitlements?
• What is your customer’s mentality? What kinds of feedback have you had from customers? What IT infrastructure do they already have in place from you?
• Where is your staff? Do you have generalists who are moderately experienced in everything, or specialists who are highly experienced in just one thing? How will this impact the services you want to offer?

What’s The Secret Sauce?

Like any other business, there’s obviously no real ‘secret’ to success, but there are a few things that I’ve learned when being involved in both the VAR and MSP businesses. There are two main pieces of advice I would give to anyone who is considering this move from a VAR to an MSP. The first is if you can’t be repeatable, standardized and have a “factory-like” approach, then you probably aren’t ready to make the transition just yet; this is the bedrock of your business and can be the difference between sink and swim.

The second thing I learned is working with the right Master Agent can make the difference between maintaining/expanding your customer base and losing out on potential future business. What I mean is that while you want to keep your business repeatable and standardized, you also don’t want to lose out on the potential revenue from someone who is looking for a service you don’t provide. That’s where a master agent like TBI comes in.

For example, this relationship enables us to stay streamlined by utilizing their inbound concierge service, allowing us to get a piece of the action in the form of residual commissions, but preventing us from getting pulled into a technology we don’t support or losing a potential future sale. This keeps it simple for our sales force.

Additionally, a master agent like TBI allows us to leverage their relationships with multiple carriers, and we’re able to standardize the services we offer. They also provide us with quotes (from multiple or single) carriers, which allow us to be agile as well as more competitive with our pricing.

At the end of the day, it’s my opinion that transitioning from VAR to MSP is a no-brainer. Not only do you have the immediate benefits of increased revenue, but you also have the long-term overall increased business valuation that the MSP model brings to the table. As technology continues to evolve, we as service providers need to evolve along with it, to stay relevant and profitable. My advice would be to jump on-board the MSP revenue train and ride the wave of revenue into the future.

About The Author

Matt Kanaskie is the Sales Manager of Recurring Solutions at Marco, a technology services company founded in 1973. Matt has been consulting, designing and implementing complex IT and telecommunication solutions for business clients for over a decade. Matt’s experience has traversed individual sales contribution, sales engineering, subject matter expert, product management and sales leadership within IT and telecommunications industry. He joined Marco in 2015 to assist in development and execution of multiple cloud communications service offerings. Matt is currently the Sales Leader for Marco’s recurring solutions which include Managed Services, Cloud Services and Carrier Services.