Service providers often struggle financially, even when their business is growing, because it can be challenging to achieve and maintain profitability. MSPs have seen success by adding security services to their offering to offset this challenge. However, security needs vary across customer accounts and some can be more complex than others. Ultimately, this can further perpetuate the challenge to control profitability.
For example, smaller customers who are taking advantage of a co-managed account relationship with an MSP can generate service costs above the standard subscription fee. Because they don’t have the same internal resources as their larger counterparts to handle level-one support or security issues, this places strain on the MSP’s resources.
Another reason why an MSP might find it hard to maintain profitability while delivering security services is that customers may generate unnecessary alerts or consistently reach out for levels of support they aren’t subscribed to, again draining the MSPs resources, without adding revenue.
To alleviate these challenges, it’s vital that MSPs take time to consider whether there’s a way to make each customer more profitable. This could mean charging more for security service support or leveling late payment charges, for example. Even if those efforts result in lost business, you may be better off dropping an unprofitable account if it gives you more time to drive business with more profitable customers.
Other strategies that can help MSPs make their services business more profitable include:
Thoroughly analyze each account and continuously measure profitability via quarterly benchmarking. This will help to quickly identify the problem accounts and point to some solutions (like pricing or service utilization) that could be adjusted to shift that account from the red to the black. This will also give you a better view of your performance against your goals over time. In some cases, you may cut loose accounts when appropriate. This can affect total revenues in the short term, but will help boost the average margin.
Ensure clients are using the systems and services they are paying for. If customers don’t use every module on their plan, the unused items still create overhead for the MSP. Offer a usage analysis, which can allow the customer to drop services they do not need. That may reduce the amount they pay the MSP, but minimizing the resources required to support them could make them more profitable.
Make sure you’re not underpricing security services. While many clients are very cost-sensitive, service charges must cover your costs and provide a sustainable margin. Security provides a strong value proposition, particularly with attacks on the rise. Your offerings should be priced to reflect that. MSP’s can avoid discounting by pointing to the costs associated with not protecting your business. In the long run, the monetary costs and impact on the customer’s reputation can be far more than the cost of protecting the business in the first place.
Account for inflation. Costs have risen sharply over the past several years thanks to the pandemic, global instability, and supply chain issues. In the current economic environment, the actual service costs (including your rising overhead) need to be recalculated and reflected in pricing. Your clients are doing this right now, as well.
Implement technology that reduces your internal costs and labor. For example, a remote monitoring and management (RMM) tool that can deliver security services through a single dashboard, allows you to monitor multiple client networks with fewer resources, reduce multiple security management requirements, and can help streamline training for new technicians. Automated alerts and first-line response tools can also make staying on top of potential threats easier to do without hiring more staff or over-extending existing teams. Partnering with vendors that have designed their technology for an MSP environment is also beneficial.
Leverage your vendor partners to outsource complex tasks. Partner with a vendor that can provide services that are resource intensive, such as a 24/7 security operations center (SOC). This can help to increase your effectiveness regarding security reliability without hiring more hard-to-find technical staff and other resources.
All of this will require MSPs to clearly understand what it costs them to provide security services. With threat levels constantly evolving, many firms are learning that paying a premium for reliable security services is worth the cost. As a result, MSPs should invest in technologies that allow them to streamline and centralize their internal operations as much as possible, while simultaneously pricing their offerings based on the value they provide. Your clients should not treat security like a low-value commodity – resourceful MSPs can use this to their advantage when it comes to pricing for profitability.
Neal Bradbury is Senior Vice President, MSP Business for Barracuda, a trusted partner and leading provider of cloud-first security solutions for managed services providers. In this role, he is responsible for driving business value for the company’s MSP partner community and alliance partners.