Yep, I know I promised you a few common pricing tools as a starting point for your MSP pricing analysis. But after reading an article from Business Solutions Magazine recently, where we were asked to reply to a discussion of VARs overcoming MSP fears, it got me thinking.
Why aren’t more MSPs more successful more quickly?
Its no surprise that successful MSPs automate quite a bit of their delivered services. I don’t want to be to be confrontational (or sound too naive), but the movement to automation isn’t new to IT. And its been around a for a long time in other industries (see Henry Ford and Ransom Olds). Heck, even we’ve been talking about it for a while, when we first presented this curve more than 5 years ago.
Since early 2000, we’ve helped 12,000 MSPs customers worldwide become more proactive with IT automation, yet our customer base still represents a small fraction of the multi-billion dollar IT services industry (according to Frost & Sullivan). Its clear to us that many corporate IT departments still outsource and they seek local expertise best-provided by an MSP.
However, its also clear that not every IT solution provider wants to convert from break fix IT support to IT managed service; yet, for those who that do convert, some are more successful than their peers in how quickly they achieve monthly recurring revenue. A big question we hear all the time is “how can I grow faster?” What holds back MSP growth?
And what can be done about it?
For those MSPs who are slow out of the gate, I’ve seen 3 common barriers to speedy MSP growth:
1. Ineffective pricing. Too many leave profit on the table by charging solely by cost plus pricing; they don’t know their true cost or willingness of their customers to pay, so they are undercharging. I wrote a 3 part blog on this.
2. Failure to specialize/verticalize. Too many are generalists; the most successful MSPs are gurus (w/ certs and vertical credentials) and sell by vertical (banks, such as Safe Systems) or by competency (business continuity, such as Data Balance). Read case studies about your MSP peers here.
3. Failure to accelerate AWAY from break-fix. Read the BSM article here. Need I say more? If ANY of them want to exit, they will have suboptimal valuations UNTIL they move to managed services.
As an MSP who faces one of these 3 barriers, how should you respond? Heres a few focus areas, in no particular order:
- Tighten up your business practice so that your IT service delivery is more efficient.
- Monitor the market and talk with your customers (ie, use a business review).
- Reassess your MSP practice/business plan, the viability of your MSP software platform, the strength of your PSA tool, and the bench strength of your technicians.
- Specialize, get a few extra certs, and start publishing content as a guru (especially in areas where your clients are).
- Commit to value-based pricing.
- And plan effectively for the future, whether its to achieve 20% growth with 30% margins or to cash out at a 3x multiplier.
Want to jump start the improvements to your business and read more about effective IT managed services? Register and download our How to Achieve Breakout Success in IT Managed Services whitepaper and read how other MSPs are growing – and making more money – using business practices unique the managed services industry.
For my next MSP pricing blog post, Ill get back to the plan and provide a few common pricing tools as a starting point for pricing analysis. If you want to register early, please subscribe to our blog and receive the post via email.