Migrating from a break/fix model to a MSP (Managed Services Provider) might be the best way to ensure business profitability in a cloud-crazy world. But with everyone trying to make the move, what will ensure your success?
I was speaking with one of our customers just the other day. In the IT business for more than twenty years, he built his client base and reputation on offering traditional computer services – typically a mix of break /fix and project-based work, and traditional maintenance agreements.
Our conversation centered on the changes we have seen – in particular with the advent of cloud computing and Managed Services, and whether that is eroding the opportunity for traditional VARs and System Integrators to remain competitive and to maintain sustainable profit margins.
Surprisingly, my colleague confided that cloud is the best thing that ever happened to him.
“Jim,” he said, “at first I thought it was going to be difficult to transition my existing break/fix and maintenance contract customers to Managed Services. Turns out, they wanted to buy Managed Services as much as I wanted to sell them Managed Services, they just didn’t know that’s what they were called.”
Interestingly, as part of several conversations I’ve had with my customers, three consistent topics keep coming up: 1) They want predictable, consistent IT Support costs versus the big peaks and valleys that you often see with break-fix work; 2) They want preventative, proactive support, instead of waiting until something broke and they went down; 3) They want us to provide a unique support package specifically tailored to their needs that was affordable.
I almost fell off my chair as I listened to them describe the exact value proposition for Managed Services!
He continued. “Being an MSP (Managed Services Provider) allows my company to provide a consistent cost structure to my client base while delivering a predictable revenue stream for us, which makes it easier for me to keep a more consistent tech head count. Providing Managed Services also allows us to get in front of potential problems, reducing client down-time. Being able to do a lot of the work remotely frees up more tech hours, which we can then use for more value-added work. This increases the value we provide to clients as their MSP. Finally, ‘the cloud’ allows us to be able to create bundles of Managed Services, more closely tailored to each customers requirements. It truly is a win-win.”
He went on to add that his business had grown by 30%, and his profit margins were running at about the same number – 30%. Those are numbers he is quite happy to live with.
I asked him how he made the move.
His response was swift. “Mindset. If you go into being an MSP with the idea that it’s going to be difficult to sell and difficult for customers to understand, and you assume they won’t want to change, then you’ve set yourself up for a difficult transition.”
He admitted it wasn’t always easy. “Our staff was used to doing things the same old way, and so there needed to be a complete re-training process to get them on board. But just like my conversations with our customers, once they realized customers significantly benefitted from the Cloud/Managed Services approach, they actually became the best up-sellers of our services. They are the ones who have been on site or on the phone all these years, and so our customers trust them. And they just needed some help to understand why customers would want Managed Services, to go along with why we wanted them to transition to Managed Services.”
Many of his customers were reluctant at first. “Our clients are not computer savvy. They are typically in the “late-majority or laggard” phase for adopting new technology. They were used to having servers, software and technicians on site, and calling us when they ran into problems. This was a significant change that took both time and client education. The trick was not to talk about ‘Managed/Cloud Services’ as new technology, but as a way to provide consistent IT Support costs, preventative/proactive support and to be able to tailor that support to their specific requirements. That just came in a bundle that happened to be called “Managed/Cloud Services.”
He added that his clients are business people first. He learned that once he was able to show them some of the numbers – the impact to their business goals and ROI – their initial reluctance evaporated.
I asked him if he could provide any tips for System Integrators who are struggling with making the move. Here is his response.
- Don’t sell the technology, sell the benefits. It is easy to get distracted and want to sell “the latest and greatest” technology, in this case Managed/Cloud Services. But customers, especially now, don’t want the latest technology, they want business outcomes and ROI. So don’t sell “Managed Services”, sell more consistent IT Support costs, preventative/proactive support (less downtime), and the ability to tailor that support to the customer’s specific requirements.
- Measure. Really understand your profit margins today, and then what they will be in a true Managed Services offering. Ultimately, Managed Services should be more profitable, but initially it may produce less overall revenue. Without the ability to measure contract profitability, it is easy to be lulled into a false sense of security that your existing business model is better. But, as we all know, high revenues don’t always equate to high profits.
- Communicate. People fear change, and so it is important that your employees understand what you are going to do and why. Help them understand how the new model will increase customer satisfaction and retention as well as profitability. Develop programs that will enable them to become your best up-sellers.
- Market. Let your clients know what you are doing. Package your offerings and create value-based bundles that enable them to pick and choose. We found that our clients liked our multi-tiered approach to service offerings, as they felt more in control.
- Value. Keep your customer-value in mind with all of your offerings. Ensure that you are putting together packages that are unique to you and that uniquely cater to them. It will be much more difficult for them to leave you if they come to rely on some specific value-add service you can include, such as reporting or business-intelligence dashboards.
Differentiate yourself from the rest of the pack by demonstrating that you are a ‘business-first’ managed services company. Here are some great conversation starters:
- Let’s talk about how moving to a managed service will help your company become more competitive and more agile.
- Let us show you how Managed Services can help your company adopt new technologies faster and with fewer headaches.
- What will it mean for your company if you can become more mobile with Managed Services?
- Can your company improve internal business efficiencies through better collaboration?
- Let’s take a deep-dive and look at the cost and the ROI of Managed Services for your company.
- What business intelligence would you like to gain from Managed Services that you aren’t getting today?
- Improve your decision-making process with Managed Services – let us show you how.
Moving to a Managed Services/MSP model takes both vision and determination. But it is the way of the future, and the time to secure your client base is now.
Have you made the move or are in the process of moving? I would be interested in your comments and feedback on this blog posting. Let me know any tips you have learned along the way.
And if you need great Enterprise PSA software to help you get there, think about taking a look at Promys. I would be happy to share a virtual coffee and a conversation with you.