I remember when I first started training MSPs and speaking at MSP events, probably around 2008 or 2009. At that time, many IT providers were trying to change from an hourly business model to a recurring revenue model. I told people they had to get to $150 a seat. Many of them couldn’t believe their ears! “Gary said what?” “Is he crazy?” “We charge $100 a seat, and customers are already complaining.”
Over time, most of you figured out how to build a valuable offering that could command that price. At a recent peer meeting, people reacted similarly when I told them it was time to set $300 a seat as the new standard. I believe we all need to achieve this price or, more importantly, this value level for our customers in the next few years.
You have more tools, higher wages, and more security, process, and governance. All of these have dramatically impacted your cost.
A seat cost of $90 at a 70 percent gross margin is $300 a seat. That’s the math. You all have a seat cost today above $50 a seat — without backup, or a SOC or SIEM solution. Add some security process, and you’re knocking on the door for your cost of $90 a seat.
Listen, in the transition to $150 a seat, we saw MSPs who struggled to make the change start to leak margin and have their growth severely slowed. The difference was it happened more slowly the first time. Things are moving faster this time, so you must get your expectations set now and begin bulking up your value.
Marketing is still one of the top challenges managed services providers (MSPs) face today. When you’re a one-person shop, marketing sometimes falls to the wayside, as there are typically urgent matters to tackle. But if you don’t have a presence in your community, someone will.
Remember: Your local community is where many of your prospects are. Doesn’t it make sense to rub elbows with them?
Here are a few ways to ensure you stay present and relevant in your community.
Contributing to Local Business Publications
Adding value is a sound strategy for acquiring new business. Local publications are always looking for engaging content. Why not offer to write a weekly or monthly column on trending topics in the IT space or some of the major IT issues businesses are facing today?
Now, I know what you’re thinking, “Gary, I don’t have enough time to run my day-to-day business operations. How will I ever find the time to sit down and write a regular column for a local business publication?” As the saying goes, if there’s a will, there’s a way.
Find someone who can help you streamline the writing process. For instance, is there anyone you know with a background in journalism or creative writing who can take an outline and turn it into a story?
You’re an expert in your field. You have ideas to share. You must figure out the best way to take those ideas and put them on paper.
Getting Involved With Local Business Leaders and Your Community
Learn to enjoy networking. You’re a local business. Many of your customers and prospects are in your local community. Get out of your seat and become involved with what’s happening around you.
For instance, join a networking group (e.g., Business Network International (BNI)) to help you acquire new leads. Here’s the thing. You can’t acquire all new business from behind your computer. Seek opportunities to connect with the business leaders in your community. You must go out and network with them; they have networks you can access if you’re willing to put in the time and effort.
But remember this: Avoid looking at everything as a transaction. Sometimes you may add value to someone’s business without receiving anything in return — and that’s okay. Focus on building long-term business relationships with the leaders in your community if you want results.
Is Your Digital Presence Current?
Is your website up to date? Do you update your social media accounts? Have you hired someone for SEO? Where can prospects find you? If you don’t have a digital presence, prospects won’t be able to hire you — it’s that simple.
Allocating revenue for marketing can help you generate leads and ensure your business is top of mind whenever any business in your community thinks about IT. That won’t happen if your competitors are doing a better job marketing themselves than you.
Staying involved in your community takes a lot of hard work. But if you put in the time and effort to build relationships and add value, you’ll be well on your way to not only growing your presence in your community but also generating more leads.
In a previous blog post, I talked about how MSPs today have many more tools and technology than ever before. Most of these tools provide integrations to other tools. Of course, this is done through APIs. While integration can help efficiency and make a technician’s job easier, it can also create additional security risks.
Security vulnerabilities in one product can migrate to other products via API access. On The Weekly CyberCall a few months ago, Ryan Weeks, Datto’s CISO, discussed these risks. He suggested that MSPs begin to map their APIs. (I had a few customers tell me that they did this for a few products and the result looked like a spiderweb!)
You may find that when products are set up, their default is to use all the available APIs. I suggest you begin mapping your APIs, review each, and turn off any that are not needed. Think about it this way: If you eliminate 20 percent of APIs, you reduce your attack surface by 20 percent.
Look, this process takes time, and time is money. It seems that we’re always talking about something else that you need to do that you didn’t have to do a few years ago. All of this has increased your cost, and not doing more increases your risk — that has a cost as well.
You need to have a process for all of these non-automated tasks. Tony Williams, our Operations Coach, calls this “having a process for process.” Then, you must assign everything to a role and be sure that this role is accounted for in your seat costs.
Every MSP has more tools and technology than it did a few years ago. Think about it: The average number of tools in your stack has probably increased dramatically. But tool costs have gone from 10 percent to 20 percent to 30 percent of your seat cost! So, it’s something MSPs should pay attention to.
Now, the rise in tool costs is not necessarily a bad thing. With tools, we offer more value to customers, making them more secure, and, hopefully, making ourselves and our customers more productive. With that, there are a few things to consider.
Understanding costs. You must understand the total cost of a tool. First, be sure to convert the cost from whatever unit of measure you are billed to an average cost per seat. For example, if you have 20 tools with 10 different units of billing from vendors, then it’s like adding fractions with different denominators. For those of you who aren’t good with fractions, it doesn’t work! It would be best if you converted everything to a common denominator. For us, that is a ‘seat’.
Labor costs. Be sure you understand the labor cost of adding a new tool. This includes managing the tool, training people, upgrades, and any tickets from using the tool.
Utilization. How many of the tool’s capabilities are you using? Most tools only have 10 percent to 20 percent of their features utilized.
Instrumentation. Do you have reporting metrics to determine if the tool accomplishes its intended result?
Accountability. Is someone accountable for the result of each tool? Hint: If you say everyone, that means no one is accountable.
This quarter, our peer groups are doing a packaging and pricing gut check, and, as part of that, a deep dive into their tool stacks. I suggest you do the same.
Do you have a business plan for 2022? If so, do you have one that’s making you do something differently? If not, success will be out of reach.
An effective business plan is actionable. It provides you with steps to achieving your goals. It also provides a way for you to achieve not only your personal financial goals but also your company’s financial goals.
There are several things to consider when building your business plan.
Just get started
A lot of MSPs give me excuses when I bring up business plans. I often hear, “I’m already working as hard as I can,” or “I’m buried with reactive work.” And then there’s my favorite, “I need to finish a few things first.” I’ve been in this business for more than 25 years, and as an MSP, I’ve never walked into my office and said, “Oh, there are no issues today? I think I’ll start working on my business plan.” There will never be a right time to start your business plan. You just have to start. Once you have a plan, you can take a step every quarter, even if it’s small. If you don’t put a plan in place, every day is like the one before. A business plan gets you to where you want to be.
But first things first
Before creating your business plan, you must review your financial results for 2022. Look at revenue by category, gross margin by category, new MRR sales, churn, etc. You also need to consider some MSP metrics, including your average seat price, average MRR, and average customer size. You need to understand where your business is today to determine where it needs to be tomorrow.
What’s your vision?
One of the most critical aspects of your business plan is your vision. What’s your 10-year vision for your life and company? Do some soul searching. Are you where you thought you’d be? Is your company as profitable as you thought it would be? Consider how your expectations have changed. Has the reality of life and business changed and lowered your expectations? Think about how you want to spend your time in a decade. Then get down to the numbers by putting a price tag on your life vision, as time and money are two sides of the same coin.
Will you be successful?
Two key factors determine the viability of your MSP business plan: profitability and trajectory (your ability to grow). You will eventually achieve your goals if you understand and prioritize these two factors. Simply put, your profitability determines your future success. The more profitable you are, the fewer people, revenue, and sales you need to hit your goals. The value of your service offering is what drives profitability. The more valuable you are, the more clients are willing to pay for your services. MSPs have a value problem, not a price problem.
Did you forget about marketing?
Many MSPs forget to incorporate marketing strategies and processes into their business plans. Marketing can help you with getting the leads you need to generate more MRR at the right price. A well-defined marketing plan includes a way to promote your value proposition and establishes goals to connect with prospective customers. Don’t forget: Both online and offline strategies are needed to increase brand awareness.
If you’re focusing on what I would call the result rather than the root cause, you will be in a world of problems. Instead of growing, you will be playing an endless game of Whac-A-Mole. But eventually, your arms are going to get tired!
With the right plan in place, you’re going to be doing things you need to move the needle.
Companies of every size have realized the importance of business resilience because of a wide variety of disruptions—from cyber-attacks and natural disasters to geopolitical upheaval. They have also evolved their use of the cloud to accommodate remote work using cloud-based applications and other cloud-based services. These companies must also protect systems, applications and data in the cloud, including Software-as-a-Service (SaaS) apps like Microsoft 365.
And because MSPs are often part of the mix of resiliency and security services, they will need cloud-based backup and recovery solutions that are equipped to meet these complex challenges.
Backup is critical for business continuity
Having a robust backup solution is critical for business continuity. Any disruption can potentially be very costly with data and applications spread around different on-premises locations and in the cloud. But the biggest selling point for backup right now is ransomware.
According to the Verizon Business 2022 Data Breach Investigations Report, ransomware breaches increased 13 percent in one year, greater than the past five years combined. By locking up data and apps, cybercriminals can cripple a business. Even if the company can foil the criminals or pay the ransom, there is no guarantee of a smooth restoration. Traditional on-premises backup solutions are no longer sufficient, given their vulnerability and the growth of cloud-based data.
The best defense against cybersecurity breaches is a holistic approach that leverages all sorts of defensive technology to identify and mitigate potential attacks. But at the end of the day, if you have a complete backup of your data available for restoration, then even a successful ransomware attack won’t be fatal. Unfortunately, many firms often manage backup and recovery on autopilot, assuming that their once per day/week/month backup process is sufficient. Ransomware has raised the stakes and made backup a business-critical activity.
Wide-ranging benefits for MSPs and their customers
MSPs should focus on several key benefits of selling cloud-based backup solutions.
Cloud backup is more predictable. Every customer faces cyber threats, so MSPs need a backup infrastructure that can meet their needs regarding availability, scalability, accessibility, and affordability. The cloud checks all those boxes, much more so than individual instances of on-premises solutions.
The cloud is safer. Cloud solutions provide better data durability and can also offer immutable encrypted copies of backups with air-gapped access through secure interfaces.
Cloud-based backup is economical. Unlike on-premises solutions that require costly hardware and support, the cloud enables consumption-based pricing. That makes it easier to incorporate cloud services into existing offerings and pricing schemes.
Cloud solutions simplify backing up everything—on-premises data, SaaS application data, and anything currently stored in the cloud.
For the MSP, there are also a number of vital benefits:
Because cloud solutions are more cost-effective and less labor/hardware intensive, they are more profitable.
It’s easier to centrally monitor and manage backups across the client base using the cloud and to address recovery operations remotely.
Cloud-based solutions with on-premises options offer the flexibility to meet varying customer requirements for backup and recovery. As a result, the MSP is better positioned to provide whatever services the client needs.
Protection against evolving threats
A simple-to-use, reliable cloud backup helps MSPs deliver better service to their customers, no matter the source of disruption. In the case of ransomware, cloud-based backup offers additional insurance against this rapidly expanding threat. That means clients can more quickly recover data and reduce disruption while avoiding the potential cost of paying a ransom or incurring additional expenses for undoing the damage.
As part of a well-rounded security offering, backup is a critical service that will help protect clients and provide additional value that will increase customer loyalty.
Nathan Bradbury is Senior Manager of Systems Engineering for Barracuda MSP, a provider of security and data protection solutions for managed services providers.
I’ve recently been talking a lot with our peer groups about the changing economy. Unfortunately, the hopes of a soft landing for the economy are diminishing. I think we’ve reached the point where we all need to think about what rising interest rates and a looming recession mean to you and your customers.
We don’t know what’s going to happen. But let’s assume that there will be an economic downturn. If that becomes the case, what potential risks will arise? How much risk do you have in your customer base? Are there decisions you would make or priorities that you would change if you knew the downturn was coming?
For example, you may need to change the questions you ask customers to assess risk, create a risk analysis sheet with all your customers on it to evaluate your risk correctly, keep more cash on hand, or draw down on your line. If you don’t have a line of credit, you may want to get one. Also, you need to monitor changes in your prices, tools, labor, and overhead.
What impact is inflation having on your margins and your seat cost? I think you need to start monitoring this almost monthly. Remember, a $3 change in seat cost requires a $10 increase in price to maintain 70 percent gross margin. You need more command over your customer base and cost drivers.
Additionally, stay up to date with economic indicators. For example, I spend 10 to 30 minutes a day reading the Wall Street Journal. I also listen to a few financial podcasts each week. It would be best if you did the same.
The bottom line is that you need to be up on the wheel more than usual in the MSP race.
The close of a sale is a celebratory occasion. After signing the contract, most companies might open a bottle of champagne or give a round of high-fives to celebrate the glory new revenue brings. It’s a joyful moment.
However, this moment is often short-lived since the onus is then on your team to deliver the best client onboarding process possible. Plus, there are a million tasks your team must accomplish to ensure a successful and happy engagement.
Onboarding a client is no easy task but with our latest IT Glue integration, myITprocess, onboarding will be a breeze.
By leveraging the IT Glue Organization information pulled from their growing list of PSA and RMM integrations, clients are automatically created in myITprocess, making the client onboarding process seamless.
You can also leverage your IT Glue integration to give you even more time savings.
You can save over 50% of your time by having your IT Glue Core and Flexible Assets information handy while you conduct your technology assessment. By attaching the IT Glue Core and Flexible Assets directly to the specific question under consideration during the assessment, you can see at a glance all the details that may bring to light any out-of-alignment issues. Then, you can quickly and easily turn these out-of-alignment issues into a prioritized technology roadmap for your clients.
Most MSPs struggle with sales, specifically the ability to add new monthly recurring revenue at the right price. The root cause of MSP sales struggles is a weak go-to-market strategy.
Our business model is very forgiving, right? It forgives many sins because we sell recurring revenue, and the average lifetime value of our customers is high. But, as our industry matures, your go-to-market motion must also mature.
Every MSP needs to do more than they do today to build a functioning marketing process.
So, here are some of the things to think about moving forward.
First, what is your starting point? Do you generate any qualified leads outside of inside sales? If so, where do they come from? Are they sources that could yield more if you put more processes around them? Set an initial goal for marketing qualified leads (MQLs) if you haven’t already. Then determine what activities to focus on based on your starting point. Consider pure marketing efforts, including inbound marketing, email marketing, event marketing, and digital marketing.
Your goal is to become a thought leader in your target market to build your prospect list, build a great relationship with prospects, and take them on their buyer’s journey. How can you achieve this? By buying or creating content regularly.
As someone who’s produced more content than I’d like to think about, it’s not an easy task. There are a bunch of industry sources that create content, specifically for MSPs. Try leveraging some other sources. If you don’t currently use Kaseya’s Powered Services Pro, which Dan Tomaszewski and I are responsible for — start there. They offer tons of high-quality content each quarter, and they’ll even post for you. Their services are very inexpensive.
Next, establish meaningful metrics and a playbook to track progress. Monitor website conversions, social media metrics, new prospects, email stats, first-time appointments (FTAs) generated, and close ratio.
When your salespeople deal with more qualified leads, your chances of training an actual successful sales resource go up dramatically, and your business becomes more scalable and valuable.
There has always been a gap between top-performing MSPs and the bottom half of the market. When I say top-performing, I don’t mean the largest MSPs. I mean the most efficient. There is some scale required to get to a base level of efficiency. But after that, I measure profitability first and MRR growth second.
You see a wide gap in profitability results in almost every industry. Often when an industry experiences a lot of changes, the gap widens. And that’s what I see happening to MSPs.
So much has changed and is changing. And not all MSPs have managed the change in the same way. Profit is just one of those results. But we can focus on something much simpler, which is price.
I see a bigger gap than ever before in terms of the average seat price (ASP) MSPs command in every market. I see people with an average seat price of $75 or $80 and in the same market, someone who averages more than $200. How can that be? Why are customers willing to pay some MSPs over twice as much? The answer is it’s simple, but not easy.
Customers only pay more for one reason — they see more value in the offering. That’s the simple part. Here’s the hard part: How do you build more value? This is where it gets interesting. Prospects and customers must see why your approach will impact things that are important to them in their business.
If you can show them how proactive roles and processes in your offering impact risks and pain that you’ve uncovered, then the higher price becomes the reason they would buy. Some MSPs are very good at this. Others are still selling with the same basic approach they had three to four years ago and wondering why sales or profits are elusive.
Two very different MSP businesses are emerging. You get to decide which yours will be. Ask yourself the following: “Which side of this gap am I on today?” Then, take an objective look at why. Look at your tightly held beliefs of what’s possible.
Even if your experience in business up until now tells you that customers won’t pay more. They’re paying more. They’re just not paying it to you. This is not my opinion, but my experience.
Once you see this clearly, the work to be better, more profitable, more scalable, and more valuable in your business can begin.
