Last month, nearly 3,000 MSPs came together at ConnectWise IT Nation 2015, the largest event in the tech solutions provider industry. This was my seventh year attending and presenting, and it’s always a beneficial conference for talking about the state of the industry and what the future holds for MSPs.
Here are a few takeaways that every MSP should consider as they move into the new year.
6 Observations: Where MSPs Are Now And Where They’re Headed
1. New, New, New
From vendors to MSPs, this was the first time at IT Nation for a lot of attendees. In fact, nearly half of the attendees were newbies. So, what does that mean for MSPs who have been on the market for a while? The competitive landscape is changing.
Think back to your experience five years ago. You were likely competing against break-fix providers. Now, there’s an army of MSPs providing IT solutions, ready to build long-term relationships with clients instead of simple quick fixes. They’re armed with tools, technology and a willingness to compete, so unless you’ve nailed down your competitive advantage, you may get lost in the mix.
2. The Quagmire Of Mediocrity
Speaking of lost in the mix … The new players might not be your biggest competition. Despite the number of new MSPs entering the field almost daily, the “average” companies in the middle class of MSPs are not performing as well as they should.
From struggles in sales to dips in profitability, it seems like average companies are getting more and more average, making the middle class of MSPs pretty crowded. So many companies are hitting a plateau before they reach World Class MSP status, often getting stuck in the reactive spiral of death.
If you’re not fighting to get out through changes to your business model, packaging and pricing, sales efforts and profitability, you’re sure to be stuck like the rest.
3. Shining Stars
But, it’s not all new or mediocre. At IT Nation, there was a small group of World Class MSPs who are reaching new heights in profitability. This group of shining stars had a few things in common: They’re growing rapidly, they’re commanding higher prices and they’re driving profit margins through the roof.
Sounds great, right? These top providers (if you’re not among them) should be your inspiration to reassess your methods. It’s possible to become a World Class MSP. You just need to employ the right tactics to make it happen.
4. It’s All About The Math
For my own two sessions at IT Nation, I focused on the math behind transforming into a World Class MSP. You’d be surprised how few MSPs knew the numbers behind making their IT solutions successful.
Try answering some of these questions that MSPs were asked in the sessions:
What is your average cost per seat?
How are you calculating cost per seat?
What is your total number of reactive hours per month?
If you don’t know the answers, you’re not alone. Most of the MSPs in attendance weren’t dialed into these key numbers, making it impossible for them to assess and improve their profitability.
Take time today to do your own math. Based on feedback from the presentation, these numbers are bound to be a real eye opener.
5. Get Your Head In The Cloud
Everywhere we looked at IT Nation, there were cloud solution vendors – and many who have raised a lot of venture money to get their business off the ground. Investors are betting big that cloud evolution is going to pick up even more steam in the coming months and years.
FYI: They’re right. But, before you partner with a cloud solutions vendor, here are a few questions to ask yourself:
Is it likely that the vendor will be in business in two years?
What would happen to your clients if this cloud solutions vendor went out of business?
Will the product or service make your IT solutions more profitable?
Will this cloud solution reduce reactive time or increase margins? (If your gross margins on managed service revenue are between 70% and 75%, use that as the standard to maintain or improve upon when you add a new feature.)
Is the product or service an ingredient you bundle into your service offering, or is it something you’ll sell as a standalone service? If it’s a standalone service, remember that all cloud service costs drop over time, and be sure you’re considering what’ll happen when those prices decrease.
6. An Expanding Universe
The marketplace for MSPs is growing. There’s an increase in the amount of companies investing in IT solutions – and in the size of those investors. The quality of prospects on the market is improving, which is good news for all MSPs in the game.
So, What Does All Of This Mean For You?
There has never been a better time to be an MSP, but to become a top provider, you need to know your math and secure your competitive advantage. Finding ways of separating your service from the wave of newcomers is key. And, avoiding profitability plateaus is going to keep you in business.
Do your best to not only add as many new clients as possible in the next few years, but also do so at the right price. Take note from the shining stars, see what these leaders are doing and follow their lead. Let’s go, people.
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