MSPs are in an unenviable position. Not only do they need great technical expertise, their business skills have to be just as good.
Some get it. But according to Larry Walsh, who has covered the channel for years and now runs Channelnomics, many MSPs don’t really get how to sell their services.
Walsh made this point GFI MAX’s recent partner conference in Las Vega.
“Just because solution providers have implemented managed services as part of their business model doesn’t mean they’ve operationalized it. In many cases, solution providers are undervaluing managed services as a revenue driver and mistaking the initial success in recurring revenue as good enough,” Walsh argued.
And there are more than just a few grappling with this issue, as Walsh argues that over 70% of solution providers include managed services in their mix. And Walsh’s 2112 Group has research shows that these managed services offer the best profits.
When it comes to building an MSP business, you need “the continual addition of new accounts, continual horizontal sales in existing accounts, and maintaining a low customer attrition rate,” Walsh argues.
Getting customers is one thing. Keeping them is another. Losing customers is bad. Not knowing how many more you might lose is worse. “The managed services magic is about predictability. If an MSP has no confidence in the loyalty of its existing customers, it will have no predictability in how much revenue will accrue over the mid- and long-term measures,” Walsh said.
Let’s assume you can attract and keep customers. Is the only way to make more money getting more customers? Hardly. You can always make more money by selling more things to your existing customer base. “Even if a solution provider doesn’t add new accounts, but expands the existing yield per account by 20 percent, it will have the same net-effect of adding 10 new customers,” Walsh argued.
Expanding services is one secret to success. MSP Today has seen this in the mergers of disparate MSPs that can double the offerings, and vendors that serve MSPs building partnerships, and broadening what they offer resellers. Even better if these tools are integrated – all the easier for MSPs to sell and manage.
Trouble is not enough MSPs are doing enough of these things that create growth.” Solution providers tell 2112 that an acceptable annual growth rate is 26 percent. In 2012, the actual rate of growth was 17.2 percent. But most solution providers grew between 11 and 15 percent. Is 11 percent or 17 percent growth bad?” Walsh asks. “The reality is few solution providers are throwing off enough cash to invest in real growth. Research by 2112 shows that 85 percent of the channel pays for routine operations out of cash flow. Ninety percent of solution providers say they’re paying for growth through the same cash flow.”
The MSP space is competitive and the only way to survive is to grow. And the only way to grow is to do nearly everything right, from bringing in new clients, expanding what you sell to each account, and hanging onto the customers you acquire.
Edited by
Alisen Downey
