6 Ways MSPs Can Increase Profit Margins as Public Cloud Competition Spikes

As managed service providers know all too well, profit margins are narrower than ever thanks to competition from the public cloud. On top of that, MSPs are feeling added pressure from original equipment manufacturers (OEMs), whose margins also are shrinking. OEMs are accounting for these smaller profits in their service contracts with MSPs. The result is that MSPs can ultimately take the biggest financial hit.

Thus, MSPs are having to choose between charging too much and potentially losing the customer, or charging too little and not profiting from their products and services.

Rob Coenen, vice president of InterOptic, helps MSPs implement IT networking strategies that aid them in becoming more profitable, without sacrificing performance. He sat down with us this week to provide six solutions to help you gain back some of your lost profit margin, along with the benefits that each can provide for your customers.

InterOptic’s Robert Coenen

1. Consider dark fiber. Dark fiber links cost more upfront for the installation and investment, but in as little as six months, your customer could be saving money because they’re not paying expensive monthly fees for leased lines from telecom companies. There are additional long-term savings too. When their network needs a bandwidth upgrade, with a fixed cost you can just add wavelengths or upgrade the routers rather than pay more per month for additional dedicated bandwidth.

2. Maintain the legacy fiber network. Many companies move away from MSPs to the public cloud because they need more network bandwidth and think it will save money. But moving to the cloud can be expensive and highly disruptive. It’s typically better suited for cost control than cost savings. Companies that don’t understand this are often surprised when they get an exorbitant bill from their cloud service provider. So they hire consultants to help them manage their cloud workloads — another pricey venture.

Instead of moving everything to the cloud, here are two solutions for upgrading your customers’ network bandwidth without upgrading the legacy multi-mode fibers:

• Upgrading from 1G to 10G: For customers with the older OM1 or OM2 fibers, where 10 Gbps SR modules won’t work, they can deploy 10 Gbps LRM modules.
• Upgrading from 10G to 100G: For customers with the more recent OM3 or OM4 fibers, they can deploy 100 Gbps SWDM4 and BiDi modules.

3. Use non-OEM hardware vendors. OEM vendors can make it difficult to make any money from brokering their hardware, offering little or no additional discount to registered partners, so it becomes a race to the bottom in terms of margin.

Consider third-party hardware like optical transceivers. These devices can save the customer money, improve your margins and even get you better technical support. But be cautious, because lowest-cost, third-party hardware vendors usually sell low-quality equipment that stops working after just a few months, hampering your customers’ guaranteed uptime.

This eats at your margins in a couple ways: You’ll end up paying for hardware replacements, you’ll have to pay the overhead of an onsite technician to replace the dead transceivers, and you can lose the customer’s trust.

Partner with a third-party hardware vendor that can provide cost savings, has equipment that performs the same as OEMs — and is reliable. Your customer will be pleased with the uptime, and you’ll be able to gain back some of your margins, thanks to the lower hardware cost.

4. Lease data center equipment. If you sell equipment to your customers, you’re losing out on …